by Mitch Kokai
Senior Political Analyst, John Locke Foundation
In attempting to refute the notion that higher marginal tax rates “kill jobs,” Bloomberg Businessweek’s Mike Dorning offers the following information:
“If the goal is to have more jobs 6 months, 12 months from now, you want to increase aggregate demand. If the goal is to have a high standard of living 10, 20 years from now, you want to increase national savings.”
Even that long run picture is not so clear. Under Bill Clinton, taxes on higher-income families were high compared to now, at 39.6 percent. Yet almost 23 million jobs were added vs. net job growth of 1.1 million during George W. Bush’s lower-tax years. In the 1950s, a Golden Age of growth, the top marginal tax rate was as high as 91 percent. There were many other economic forces at work in each of these periods, making direct comparisons difficult. Still, says Slemrod, now a professor at the University of Michigan, “it disproves the idea tax increases are the kiss of death.”
In case you missed his point, Dorning repeats the link between “rapid economic growth” and a 91-percent top marginal tax rate in the brief article’s “bottom-line” summary.
So higher tax rates are good for economic growth? Of course not. What Dorning misunderstands or willfully misstates is the importance of analyzing the impact of the tax rates themselves — holding other factors constant. Yes, the United States has experienced faster economic growth than it does today at times when tax rates have been higher than today’s rates. Those higher-growth periods occurred because of other factors, some of which (post-World War II demobilization, for example) are not likely to be repeated any time soon.