From today’s NY Times,
Interestingly, it is the times of highest taxes when we have been most prosperous.
And then there’s the evidence. Over the last 30 years, economists have undertaken hundreds of studies to determine whether taxes hurt the economy. So far, they’ve turned up little to convict taxes of the charge. After reviewing the literature on the topic in 1993, two economists, William Easterly of New York University and Sergio Rebelo of Northwestern, concluded in a joint paper that “the evidence that tax rates matter for growth is disturbingly fragile.”
A leading tax specialist today, Joel B. Slemrod of the University of Michigan, would agree. He notes that in the 20th century, a rising tax burden in the United States and other developed countries went hand in hand with rising prosperity.
Maybe that is because we have a consumer economy, and higher taxes usually really means higher taxes on the rich – which means a lower share of the tax burden is on the great masses of non-rich. In a consumer economy obviously more people having more money to spend is good for the economy. In other words, redistributing the income down from the top is good for everyone, even the rich. And higher taxes would mean the government would not be borrowing, which is bad for the economy in the long term.
Higher taxes also enable the government to spend more, which is obviously good for the economy. Government spending means more jobs, and more money circulating in that consumer economy of ours. That’s what spending is. Also the government usually spends money on things that are good for the economy in the longer term, like education, science, infrastructure (the internet, roads, etc.) Investment.
When I learned about science, I learned that science is supposed to DEscribe what happens. But a lot of this kind of economics seems to be about, “If only people did so-and-so, so-and-so would happen.” That does not describe, it prescribes. And it’s also wrong.