The Great Tax-Cut Experiment and Corporate Taxes as % of Profits
Comparisons with Other Countries: Americans pay a smaller proportion of total income in taxes than do people in any other advanced capitalist economy. As recently as the late 1960s, taxes accounted for as high a share of national income in the United States as in Western European countries. After decades of tax cuts, however, the United States now stands out...
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The Great Tax-Cut Experiment
Posted on February 21, 2013 by Marc
to read Gerald Friedmanfs gThe Great Tax-Cut Experimenth from Dollars and Sense, January/February 2013, click on
Comparisons with Other Countries: Americans pay a smaller proportion of total income in taxes than do people in any other advanced capitalist economy. As recently as the late 1960s, taxes accounted for as high a share of national income in the United States as in Western European countries. After decades of tax cuts, however, the United States now stands out for its low taxes and small government sector. (See Figure 2.)
Figure 2: Tax Revenue as a Percentage of GDP, 2008
Higher Growth When Taxes Are Higher: On average, the economy has grown faster during presidential administrations with higher tax rates on the richest Americans. Growth was unusually slow during George W. Bushfs two terms (Bush II) and during Obamafs first term, when the Bush tax cuts remained in effect. On average, every 10 percentage-point rise in the average tax rate on the richest has been associated with an increase in annual GDP growth of almost one percentage point. (See Figure 3.)
Declining Tax Rates Havenft Stimulated Investment: Cutting taxes on the richest Americans has not led them to invest more in plant and equipment. Over the past 50 years, as tax rates have declined, there has been no increase in investment spending as a percentage of GDP. (The flat trend line shows that changes in the highest marginal income-tax rate have not affected investment much, one way or the other.) Instead, the investment share of the economy has been determined by other factors, such as aggregate demand, rather than tax policy. (See Figure 4.)
Lower Taxes, Slower GDP Growth: Despite lower and declining tax rates, especially on the rich, the United States has had slower productivity growth over the last several decades than other advanced economies. Overall, lower taxes are associated with slower growth in GDP per hour worked. A 10 percentage point increase in taxes as a share of GDP is associated with an increase in the productivity growth rate of 0.2 percentage points. (See Figure 5.)
GERALD FRIEDMAN is a professor of economics at the University of Massachusetts-Amherst.
SOURCES: Tom Petska and Mike Strudler, gIncome, Taxes, and Tax Progressivity: An Examination of Recent Trends in the Distribution of Individual Income and Taxesh (Statistics of Income Division, Internal Revenue Service, 1997); Thomas Hungerford, gTaxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945h (Congressional Research Service, 2012); Economic Report of the President, 2012; Bureau of Economic Analysis (bea.gov); Organization of Economic Cooperation and Development, OECD STAT.
Corporate Taxes as % of Profits (1950-2010)
U.S. Corporate Tax Rate Plunges To 40 Year Low Of 12.1 Percent
Posted on February 16, 2013 by Marc
By Pat Garofalo on Feb 3, 2012 at 11:20 am
In recent decades, corporate tax revenue has plunged, falling from about 6 percent of gross domestic product in the 1950?s to less than 2 percent today, due to a proliferation of corporate tax breaks and the use of offshore tax havens. According to the Congressional Budget Office, in fact, corporate tax receipts as a share of corporate profits have hit their lowest point in 40 years...
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