It’s been clear for a long time that lower tax rates don’t have much long term effect on economic growth. For example, can you determine which years have low or high tax rates from the following graph?

But recent analysis by Ethan Kaplan of the University of Maryland actually shows that lower tax rates lead to lower economic growth! Here is Kaplan’s scatter-plot of real growth rates versus top marginal tax rates. The correlation is clearly positive – meaning higher tax rates correspond to higher growth and lower tax rates correspond to lower growth.

 

 

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