Split Thread Trickle-down economics

[The Don]

17 out of 27 libraries in Bristol, UK, are to be closed to pay for tax cuts for the extremely rich, and trickle down economics.

Which tax cuts would these be then ?

Don't get me wrong, I think that "Austerity" was an ill-conceived and ill-executed exercise. The government pulled the rug out from the recovery back in 2010 when they put so many capital programmes on hold, their rhetoric about austerity had a significant dampening effect on public confidence before any actual austerity was enacted and the perceived effects of austerity were IMO a major factor in restricting access to local services which in turn fed the "coming over here taking our council houses and clogging up the NHS" message that underpinned the Leave campaign on Brexit.

You're right that council spending is being severely constrained by austerity and this in turn is causing libraries and sports centres to be closed, shortages in local services and chronic under-funding of important things like child services. What I don't see is a direct link to tax cuts for the very wealthy so much as the standard Conservative schtick of reducing the benefits bill (except for pensioners who coincidentally tend to trend Tory) so as to "make work pay" and "force people to stand on their own two feet" (very difficult if that person is confined to a wheelchair.

It's also IMO not being sold to the British public as trickle down. AFAIK there hasn't been the focus on "wealth creators" and an insistence that massively reduced taxes will somehow manage to result in spectacular growth and an increased tax take.

Also, the 17 of 27 libraries was a proposal. AFAIK no decision has been made but it is true that this is the option to which the LABOUR led council seems to prefer.

http://www.bristolpost.co.uk/news/bristol-news/libraries-could-closing-bristol-660391

The same thing seems to be happening in America with behaves just like a chump, Trump. I don't think it's equitably administered.

IMO there are several orders of magnitude difference between what the Trump Administration and GOP are proposing in the US and anything that the Conservatives have come up with here.

Indeed, in response to the ************* that is Brexit, Austerity seems to have been put on the back-burner to a certain extent.

 

[Fast Eddie B]

17 out of 27 libraries in Bristol, UK, are to be closed to pay for tax cuts for the extremely rich...

I certainly don’t know the details involving library closures in Bristol, but...

Are not libraries generally becoming anachronisms? I think long term we’re bound to see lots of closures, regardless of the motivation.

Single data point: I used to go to libraries all the time. But have not been in one for years. I doubt I’m an outlier in that regard.

And I’m skeptical it’s as simple in Bristol as libraries vs. tax cuts for the extremely rich.

 

[The Don]

I certainly don’t know the details involving library closures in Bristol, but...

Are not libraries generally becoming anachronisms? I think long term we’re bound to see lots of closures, regardless of the motivation.

Single data point: I used to go to libraries all the time. But have not been in one for years. I doubt I’m an outlier in that regard.

And I’m skeptical it’s as simple in Bristol as libraries vs. tax cuts for the extremely rich.

Yes, and no.

In the UK, libraries are diversifying. As well as access to books, they now offer access to CDs and DVDs which may be somewhat outdated media but still popular. Libraries also act as "hubs" for access to local council services. We pick up our recycling bags from there, find out about local services and so on. Some libraries also offer learning groups for both adults and children.

Despite all this, library usage has decreased significantly, but not among the poorest. A removal or curtailment of library services would disproportionately hit the poorest (who presumably would find it less affordable to buy media) which in turn places a finger in favour of the better off on the scales of inequality.

"Per library" usage on the other hand is up with the proportion of libraries closing being higher than the drop in usage. Whether that's a leading (libraries close so people stop going because travelling to find an open one is inconvenient and/or expensive) or trailing (unpopular libraries being closed and popular ones staying open) indicator is well beyond my pay grade.

https://www.cilip.org.uk/news/lates...-reveal-alarming-depth-uk-wide-library-losses

That said, to me the trail linking library closures to tax cuts for the rich isn't a clear one.

 

[JJM 777]

In the UK, libraries are diversifying. As well as access to books, they now offer access to CDs and DVDs

Oh my fkn God.

 

[The Don]

Oh my fkn God.

Yeah ! Fully embracing the 20th century !

 

[caveman1917]

Trickle-down economics is easily explained. We (the relatively poor, working class) work our backs off to give the rich exquisite champagne, and then the rich piss on us.

 

[Henri McPhee]

I'm not a great admirer of theoretical economics. From the internet:

While economists cloak their views in the aura of science, what they actually do is make assumptions about the world, use those assumptions to build imaginary economies (known as models), and from those models generate conclusions. Their models can be useful or dangerous, and it is surprisingly difficult to tell which is which.

Schlefer arms us with an understanding of rival assumptions and models reaching back to Adam Smith and forward to cutting-edge theorists today. Although abstract, mathematical thinking characterizes economists’ work, Schlefer reminds us that economists are unavoidably human. They fall prey to fads and enthusiasms and subscribe to ideologies that shape their assumptions, sometimes in problematic ways.

Schlefer takes up current controversies such as income inequality and the financial crisis, for which he holds economists in large part accountable. Although theorists won international acclaim for creating models that demonstrated the inherent*instability*of markets, ostensibly practical economists ignored those accepted theories and instead relied on their blind faith in the invisible hand of unregulated enterprise. Schlefer explains how the politics of economics allowed them to do so.*The Assumptions Economists Make*renders the behavior of economists much more comprehensible, if not less irrational.

 

[The Don]

I know this is OT but to return to the subject of libraries. A friend manages a number of libraries in the Bristol area and he highlighted a couple of things.

A number of libraries are now unmanned (although they have CCTV monitoring) for periods of time which brings down the cost of running them significantly. I asked whether this meant that the books were left in disarray, he said that it was no worse than the library staff

He also said that a lot of people (including school age children) use libraries as study spaces. They are quiet, warm, well lit and have reference materials and PCs to access the internet. He arrives at work around 0815 and says that the library is already really busy.

According to him, although the number of books being loaned is falling, footfall in the libraries he is responsible for managing is increasing and he is actively promoting this by inviting groups to meet in the library instead of them renting a room elsewhere.

Oh, and library closures haven't taken into account whether libraries are popular or not so the increased use per library is a genuine effect and not one resulting from the less popular libraries being closed.

 

[The Don]

I'm not a great admirer of theoretical economics. From the internet:

If it's from the internet, why not include a link ?

This appears to be a precis of a book by Jonathan Schlefer and, for example, has appeared on Amazon.

 

[Henri McPhee]

If it's from the internet, why not include a link ?

This appears to be a precis of a book by Jonathan Schlefer and, for example, has appeared on Amazon.

That article has a complicated URL and I'm not sure it links to this forum.

There was a BBC2 TV documentary about trickle down economics yesterday early evening which was most severe in its criticism. It interviewed, I think, Professor Chang of Cambridge University who said there had been trickle down economics in Britain and America for the past thirty or forty years under Thatcher and Reagan which had resulted in low growth and low investment. He said there needed to be a robust middle class. It then interviewed somebody involved in buy to let properties who was rolling in it, and the daughter of a Russian oligarch who was investing in diamonds.

I'm under the impression that the Inland Revenue has some rule that the extremely rich from overseas don't have to pay more than £30000 in income tax which is pocket money for them.

It then interviewed some single mothers who had been given ejectment orders in Lambeth, London. Their Labour MP and Labour councillors had told them they should not be living in Lambeth if they couldn't afford it. There are many luxury apartments being built there which cost many millions for overseas investors. With this Universal Credit the unemployed and disabled are now expected to live on air.

In Britain and also in America there has always been a contract between the people and the government for Social Security and Health which is now being broken by these trickle down economists.

 

[The Don]

That article has a complicated URL and I'm not sure it links to this forum.

One way to find out......

In any case the text quoted is all over the internet, it appears to be marketing spiel about the book and may from the back cover or the forward of the book.

There was a BBC2 TV documentary about trickle down economics yesterday early evening which was most severe in its criticism. It interviewed, I think, Professor Chang of Cambridge University who said there had been trickle down economics in Britain and America for the past thirty or forty years under Thatcher and Reagan which had resulted in low growth and low investment. He said there needed to be a robust middle class. It then interviewed somebody involved in buy to let properties who was rolling in it, and the daughter of a Russian oligarch who was investing in diamonds.

Again no link, this is really rather rude of you:

http://www.bbc.co.uk/programmes/b04yn2yq

Yes, the BBC's equivalent of clickbait rather than a serious economic documentary:

The Super Rich and Us

Britain has more billionaires per head than anywhere else, yet we're also the most unequal nation in Europe. In this two-part series, Jacques Peretti investigates how the super-rich are transforming Britain.

In episode two, Jacques investigates how inequality was pinpointed as a business opportunity before the crash by the biggest bank in America, as a way of making money from a more divided society. Jacques also looks at how our work life was made deliberately more unstable in the 70s to drive a new 80s profit culture, and how an acceptance of huge executive bonuses was manufactured.

Jacques meets the billionaires who have gained, those that are fearful for the society being created, and the people whose decisions are changing the very way we live.

but I guess interesting nevertheless.

I'm under the impression that the Inland Revenue has some rule that the extremely rich from overseas don't have to pay more than £30000 in income tax which is pocket money for them.

Your usual degree of accuracy on recollections.

Here are the detailed non-domiciled tax rules:

https://www.gov.uk/tax-foreign-income/non-domiciled-residents

tl;dr version: you pay tax where you make your money.

That said, the abuse of non-domiciled tax status by some is IMO despicable.

It then interviewed some single mothers who had been given ejectment orders in Lambeth, London. Their Labour MP and Labour councillors had told them they should not be living in Lambeth if they couldn't afford it. There are many luxury apartments being built there which cost many millions for overseas investors. With this Universal Credit the unemployed and disabled are now expected to live on air.

Without context, and considering the way in which accounts can get mangled during your recollections, it's difficult to know what was said and of course if we're uncritically accepting the accounts of those who allegedly received the ejectment(sic) orders, those may not necessarily exactly match what actually happened.

I'm not entirely sure what your point is though.

In Britain and also in America there has always been a contract between the people and the government for Social Security and Health which is now being broken by these trickle down economists.

The US has never had such a thing IMO. Certainly not for healthcare and the US approach to welfare has always seemed very parsimonious to me.

OTOH I see no evidence for the implementation of "trickle down" by the current, or recent, governmants in the UK

 

[Meadmaker]

A few years back, I decided to do some research, diving into academic papers, textbooks, and the like, to see what the data had to say about connections between tax rates and economic growth. I looked for data about absolute rates (i.e. rates of 15%, or some such), or derivatives of those rates, (i.e. tax hikes versus tax cuts regardless of the baseline.)

What I found was that within the range of tax rates that existed in the United States during the modern era, which I would define as starting with the end of WWII, there was no connection. We've had high growth with high taxes, and high growth with low taxes. We've had high growth following tax cuts, and high growth following tax hikes. Likewise with low growth. The two just aren't connected.

I looked around a lot for papers which would support the premise that taxes causes or prevented economic growth, and they just didn't exist. I will, however, bring up one paper that I saw cited many times as "proving" the connection, specifically by proving that tax hikes inhibited economic growth. Well, not just any tax hikes, mind you. The authors separated tax hikes into "exogenous" tax hikes and "endogenous" tax hikes, and the exogenous hikes had a clear correlation.....or was it the other way around. I really don't remember.

And what, you might ask, is the difference? Well, it depends on why you are raising taxes.....or was it cutting taxes? I can't remember. One way or another they looked at headlines and speeches in the Congressional Record to determine the motivations of congresscritters as they voted for the bills.....or was it against? I can't remember. After appropriately categorizing, there was a clear correlation. Well, it wasn't a really large correlation, but it was clear.

In other words, it was the worst sort of cherry picking of data, and it was cited over and over. I don't remember the authors, or the title, but I'm confident that if you put "endogenous tax" into google, it'll pop up. I saw it in lots of different (conservative) sources.

My conclusion from all that research is that raising taxes brings in more money to the government, and lowering taxes brings in less. As strange as it may seem, that seems to be what the data supports. Meanwhile, economic growth is fueled primarily by increasing productivity due to automation, and inhibited primarily by the aftereffects of various bubbles bursting, as people discover that they don't have as much money as they thought they had in their houses or mutual funds. Sudden changes in the price of oil also have positive or negative effects on the US economy. Go figure.

 

[stevea]

A few years back, I decided to do some research, diving into academic papers, textbooks, and the like, to see what the data had to say about connections between tax rates and economic growth. I looked for data about absolute rates (i.e. rates of 15%, or some such), or derivatives of those rates, (i.e. tax hikes versus tax cuts regardless of the baseline.)

What I found was that within the range of tax rates that existed in the United States during the modern era, which I would define as starting with the end of WWII, there was no connection. We've had high growth with high taxes, and high growth with low taxes. We've had high growth following tax cuts, and high growth following tax hikes. Likewise with low growth. The two just aren't connected.

Were you considering only marginal rates - b/c that will get you nowhere. Pre-Kennedy the top marginal personal tax rate in the US was 90%, but effectively no one paid that rate. The very rich could get exceptoins in law, and the not-so-rich had a plethora of peculiar loopholes available.

I beleive you'd want to examine the impact of tax *policy* on capital rates or total capital available would be better.

--

The first task is considering any issue is to remove the loaded and pejoritive terminology. There is no such thing as "trickle down", despite that a load of qualified opponents use only that sort of language as a derogatory term. JK Galbraith stooped to making up his "horse and sparow" metaphor to further degrade the conversation. The term 'supply side' is more neutral and accurate.


The central notion is that we can get better economic growth by tax policies that encourage increased capital formation rather than consumption.

This idea is hardly surprising, as (AFAIK) all economic growth models posit an optimal capital spending vs consumption levels. The neo-keynesian Solow growth model for example explicitly describes growth as a multi-variate function dependent on capital spending. Even reasoning from fundamentals, it's not hard to see that there should be an optimal level of capital spending.

Assuming one accepts the obvious wrt optimal capital spending the only questions at issue are ....
- is our capital spending above/below the optimal level ?
- does a particular tax policy increase capital spending ?


I'm not beating on you, Meadmaker, but you can't look at simple charts and come to any useful conclusion. It's necessary to categorize tax POLICY carefully and accurately. The sort of work the Romer's did wrt government vs private spending multipliers and is becoming a more popular form of analysis.

===

The content of this thread (again, not Meadmaker) are often shameful for self-declared skeptics or critical thinkers.

XX - Specifically 'Chicago School' of Economics is not a religious theology, and the various Nobel laureates said relatively little on tax policy. Nice example of broad-brush slander, dismissal-ism from ignorance tho'.

XX - The correlation between a select set of Presidents parties and deficits ... The list of Pres' is cherry picked (carefully omitting FDR is a hint), the result is statistically insignificant, and the maior objection making this sort of unscientific malarky evident is that there is absolutely no attempt to link POLICY or ACTIONS to OUTCOMES - consideration of causality is avoided. Not only is correlation, not causation, but statistically insignificant correlation based on no plausible causal theory is voodoo thinking. We may as well assume it's the alphabetic order of (D) vs (R), and all vote for the (C) Constitution party.

XX - 'tax cuts only for the rich' idea is very poor on several accounts. The recently proposed plan cannot be characterized as only for the rich by any reasonable observer. If the basis for as a tax policy to benefit all by growth, happens to involve advantaging the wealthy, when what sane person would not promote it ? This is a 'cut off your nose to spite your face' attitude. I believe the recent statistic is that almost 50% of citizens with income pay no federal taxes. The remaining income tax incidence is so progressive "the rich" pay most taxes. How can we not rationally expect that the rich will receive most of any tax breaks ? This sort of 'hate the rich' envy meme is silly in another way, income (the thing subject to taxation) is not wealth - and they person taking a cap.gain on their residence or converting a traditional IRA becomes one of the hated-rich for a year. This appeal to the emotion of envy, is sad to see on such a forum.

Way to not-address the real issue guys.

 

[seayakin]

I certainly don’t know the details involving library closures in Bristol, but...

Are not libraries generally becoming anachronisms? I think long term we’re bound to see lots of closures, regardless of the motivation.

Single data point: I used to go to libraries all the time. But have not been in one for years. I doubt I’m an outlier in that regard.

And I’m skeptical it’s as simple in Bristol as libraries vs. tax cuts for the extremely rich.

As a librarian, I had to answer this. Sorry for the diversion.

I can't speak for the UK but in the US, library usage has been consistent. In my state of Massachusetts, just going by circulation, there has been some significant drops in circulation of physical materials but there are significant increases in ebook usage. Foot traffic is high in many areas and not just poorer communities. Some o the wealthy communities (Winchester, Lexington, Arlington) usage is very high. Surprsingly to many, Millennials are the highest users which bodes well for libraries. See the Pew Research. It is also clear, cuts in library funding affect the poor most. Libraries can be the only place some people access the Internet.

 

[Meadmaker]

I beleive you'd want to examine the impact of tax *policy* on capital rates or total capital available would be better.

I am certain that tax policy can affect economic growth.

However, the GOP consistently pushes a line that tax cuts will increase economic growth and pay for themselves that way. In other words, if you believe the rhetoric, those simple charts you talked about would work. They don't.

 

[Meadmaker]

Stevea,

In general, I agree with what you write. Certainly we need to balance investment and consumption, and taxes have an effect on that, as does government spending. My objection is that the dumbed-down, GOP congressman, version of "supply side economics" is "tax cuts good". It doesn't matter what the current rates are, the GOP says we should cut taxes. It doesn't matter how much we are spending, the GOP says we should cut taxes. There's no thought. There's no balance of capital creation versus consumption. There's not consideration of debt, borrowing, or anything else. Tax cuts good.

And while I agree that the perjorative terms like "trickle down economics" aren't helpful, it's not all that bad, either. They really are sold as the idea that tax cuts to the wealthy will make life better for the poor. Would you prefer "rising tide economics"? The policies seem catered toward boat owners.

 

[stevea]

I am certain that tax policy can affect economic growth.

However, the GOP consistently pushes a line that tax cuts will increase economic growth and pay for themselves that way. In other words, if you believe the rhetoric, those simple charts you talked about would work. They don't.

There are loads demagogic rhetoric on both sides of the issue (I think 'postcard filing' is the most egregious, tho' not the most harmful lie), but your characterization isn't accurate. Reps are not universally promoting arbitrary tax decreases as revenue positive.

The current house plan involves a statically scored $1.5Trl deficit over 10 years. If the revised tax system results an a sustained 0.9% added GDP growth, then it becomes revenue neutral over the same 10 years, and an advantage beyond that. That's simple math you can do with a spreadsheet or whatever.

My *opinion* is that 0.9% sustained growth improvement is pretty optimistic, tho' within range many of the growth models. My bigger concern is whether politicians can create a tax policy for improved growth without a lot of sugar/payola to other factions that harm growth.

Assuming we accept that more US capital spending would improve GDP (and there are good reasons to think this) exactly how could a politician 'sell' a tax plan that does only this ? How would ppl react to a new tax plan that only reduced corporate taxes, reduced capital gains, reduced taxes on pass-through entities (partnerships, LLC, self-employed) and allowed instant deductions for business expenses ? I imagine the Dems would demagogue this as tax cuts for the wealthy & corporations and stop it cold. I don't imagine the average Rep voter would have a much higher opinion of the plan.

So instead they add candy for the masses - a higher deduction amount and lower initial rates, which may encourage more consumption than capital accumulation - therefore diluting the advantages of the less agreeable half of the plan.

So it's (IMO) probably politically impossible to create a tax plan that obtains the stretch 0.9% added growth.

-

A nice slide presentation. I don't completely agree, esp w/ conclusions, w/ it but it outlines the issues well.
https://piie.com/system/files/documents/furman20171103ppt.pdf

--

Just as an aside - the current INCOME tax code is so progressive that almost 50% of the population pay no net income tax. After considering federal transfer payments, the bottom 60% pay net nothing (negative actually) and the 4th quintile pays only a few percent ! Virtually all income taxes net of transfers are paid by the upper 20%! So it could be argued that income tax cuts do benefit capital formation.

 

[stevea]

Stevea,

In general, I agree with what you write. Certainly we need to balance investment and consumption, and taxes have an effect on that, as does government spending.

Right, but the "balance" (equilibrium) should be created by competitive markets, not government central planners. The problem is that we tax capital (profits, cap.gains, dividends as transfers) and restrict use of capital spending realization via amortization tables, but we don't tax consumption (federally). This creates a market bias in favor of consumption and against capital investment.

My objection is that the dumbed-down, GOP congressman, version of "supply side economics" is "tax cuts good". It doesn't matter what the current rates are, the GOP says we should cut taxes. It doesn't matter how much we are spending, the GOP says we should cut taxes. There's no thought. There's no balance of capital creation versus consumption. There's not consideration of debt, borrowing, or anything else. Tax cuts good.

There is plenty of thought, and you can see it in the tax committee proceedings, but it isn't the sort of topic that you can present to the average knuckle-dragger of either political persuasion, nor even to a reader of a popular publication like The Atlantic. They don't even cover it in much depth in WSJ or Barron's.

And while I agree that the perjorative terms like "trickle down economics" aren't helpful, it's not all that bad, either.

IMO it's extremely bad b/c it's a despicably wrong view that is meant to elicit an negative emotional reaction from some who has failed to consider the actual issue. It's pure demagoguery - just as when the Right refers to ACA policy as "death panels". This is no better form of communication that is flinging feces. Think hard about why the specific word "trickle" was employed, or why JK Galbraith used his (made up) citation of "horse and sparrow" (horses fed excess oats supposedly excrete them for sparrows). These are designed to disparage the plan w/o actually addressing it.

No - there is no "trickling" that's all about demagogically eliciting an emotional response to delude the unthinking.

They really are sold as the idea that tax cuts to the wealthy will make life better for the poor. Would you prefer "rising tide economics"? The policies seem catered toward boat owners.

A lot of nations (Japan, Korea, India) had/have national industrial development programs which clearly can create long term competitive advantage. These are also programs meant to encourage capital spending, with a goal of increased economic growth, including jobs and higher incomes. No one was "trickled upon" while the S.Korean per capita GDP quadrupled since the mid 1985s.


No let's call it exactly what it is - and lose the loaded terms and analogies. It's a federal tax policy meant to increase economic growth by encouraging capital spending, and
creating more competitive business tax system.

 

[Brainster]

A few years back, I decided to do some research, diving into academic papers, textbooks, and the like, to see what the data had to say about connections between tax rates and economic growth. I looked for data about absolute rates (i.e. rates of 15%, or some such), or derivatives of those rates, (i.e. tax hikes versus tax cuts regardless of the baseline.)

What I found was that within the range of tax rates that existed in the United States during the modern era, which I would define as starting with the end of WWII, there was no connection. We've had high growth with high taxes, and high growth with low taxes. We've had high growth following tax cuts, and high growth following tax hikes. Likewise with low growth. The two just aren't connected.

I looked around a lot for papers which would support the premise that taxes causes or prevented economic growth, and they just didn't exist. I will, however, bring up one paper that I saw cited many times as "proving" the connection, specifically by proving that tax hikes inhibited economic growth. Well, not just any tax hikes, mind you. The authors separated tax hikes into "exogenous" tax hikes and "endogenous" tax hikes, and the exogenous hikes had a clear correlation.....or was it the other way around. I really don't remember.

And what, you might ask, is the difference? Well, it depends on why you are raising taxes.....or was it cutting taxes? I can't remember. One way or another they looked at headlines and speeches in the Congressional Record to determine the motivations of congresscritters as they voted for the bills.....or was it against? I can't remember. After appropriately categorizing, there was a clear correlation. Well, it wasn't a really large correlation, but it was clear.

In other words, it was the worst sort of cherry picking of data, and it was cited over and over. I don't remember the authors, or the title, but I'm confident that if you put "endogenous tax" into google, it'll pop up. I saw it in lots of different (conservative) sources.

My conclusion from all that research is that raising taxes brings in more money to the government, and lowering taxes brings in less. As strange as it may seem, that seems to be what the data supports. Meanwhile, economic growth is fueled primarily by increasing productivity due to automation, and inhibited primarily by the aftereffects of various bubbles bursting, as people discover that they don't have as much money as they thought they had in their houses or mutual funds. Sudden changes in the price of oil also have positive or negative effects on the US economy. Go figure.

The problem with looking at history is that there really is only a little bit of it available for study and there are always oodles of other factors. The US had terrific growth rates in the 1950s despite high tax rates. But that's not the only thing that was different in the 1950s. Europe and Japan were recovering from the devastation of war, which meant that they needed lots of goods and at the same time didn't have a lot of factories to manufacture those goods. Hence a lot of demand for American goods and not a lot of competition; it is not hard to succeed in a market like that.

Mathematically it is not hard to prove that higher tax rates lead to lower economic growth; that's basic Macroeconomics. Do higher interest rates lead to lower economic growth? Obviously they do, which is why the Fed raises them whenever they feel the need to tamp down inflation. What is magical about tax rates that they do not have the same impact as interest rates?

 

[Meadmaker]

The problem with looking at history is that there really is only a little bit of it available for study and there are always oodles of other factors. The US had terrific growth rates in the 1950s despite high tax rates. But that's not the only thing that was different in the 1950s. Europe and Japan were recovering from the devastation of war, which meant that they needed lots of goods and at the same time didn't have a lot of factories to manufacture those goods. Hence a lot of demand for American goods and not a lot of competition; it is not hard to succeed in a market like that.

In summary, there is no empirical evidence that tax rates affect economic growth, so long as the rates are contained within the range of historic post-war rates in the United States.

By the way, there were oodles and oodles of things going on in the 1980s, too.

Mathematically it is not hard to prove that higher tax rates lead to lower economic growth;

Ok. It's not hard, so do it, or point me to someone who has done it.

You can't. You can't, because not only is it impossible to prove, there is no reason to believe it at all.

What you can do, or at least a lot of economists have done in those papers I was reading, was to construct a model that has a certain set of assumptions, and then insert numbers into the model and show that, based on the assumptions of the models, raising taxes will lower economic growth. I've seen lots of papers that do that. The thing that is missing from all of those papers is the part where they provide any evidence for their assumptions. Every one of them that I have seen makes assertions that are unfounded, and generally involve restating their conclusion as a premise. The most common error that I have seen involves some form of assertion that individual productivity will be less if taxes are high, and then their model shows that economic growth, which is just the rate of change in the sum of individual productivity, will be less. Well, duh. If you assume your conclusion, it's pretty easy to prove your conclusion, based on your assumption.

In fact, a simple thought experiment proves your assertion wrong. You said, "higher tax rates lead to lower economic growth" You didn't provide any qualifiers to the statement, so clearly the highest possible growth would occur if the government stopped collecting any taxes at all. (We'll assume that direct payments from government are not really "negative taxation, so the lowest possible tax rate is zero.)

Do you really think the way to foster economic growth is to eliminate taxation? That the highest possible growth would occur if we got rid of taxes? If not, then your assertion must be false.

that's basic Macroeconomics. Do higher interest rates lead to lower economic growth? Obviously they do, which is why the Fed raises them whenever they feel the need to tamp down inflation. What is magical about tax rates that they do not have the same impact as interest rates?

1. I don't know the answer to the first question. I strongly suspect that it is something that is true in a typical case, but not always.

2. As for the second question, you may as well ask why tax rates do not have the same impact as batting averages. Why should tax rates and interest rates have the same effect?