Tax Cuts and Economic Growth
September 18, 2012 Leave a comment
Every election season we run through this: conservatives say tax cuts lead to more disposable income, which leads to more spending, which leads to economic growth. The key point here in that money sent to the government does not contribute to economic growth (see Y = C + I – G + (X – M)). Liberals argue that growth occurred with high marginal rates (90% was the highest) after World War 2, and that the Clinton years saw growth even though Clinton raised taxes.
How to sort this out, since both sides are referencing facts? I think this article by Jim Pethokoukis at the American Enterprise Institute is a good first step in understanding those views. Jim believes, like I do, that marginal tax cuts (tax cuts by tax bracket) will spur economic growth. Take a look, and let me know what you think in the comments.