Don’t Believe the Republicans on Growth: The Data Show They’re Wrong

How to Make Government Work
Aug. 8 2012 6:17 PM

Romney’s Entire Premise on Taxes and Growth Is Wrong

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Romney and the Republican Party believe cutting marginal tax rates will spur growth, despite contrary evidence

Photo by Justin Sullivan/Getty Images.

The entirety of Mitt Romney's economic agenda—and the agenda of the Republican Party (led by Grover Norquist) for the past quarter of a century—has been to cut marginal tax rates for the wealthy. The elixir to stimulate growth, as they have repeated so often that it has become a mantra, is to give so-called job-creators the incentive to invest by cutting their marginal rates.

We have seen the historical failure of this argument here at home. Gross Domestic Product and job growth were much greater than they are now when marginal tax rates were higher, whether you look at the 1990s or back to World War II, when marginal rates were at about 90 percent, compared with 35 percent now.

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But let's look at the argument from another perspective: Let's compare GDP growth and unemployment here at home with those rates in other countries where the marginal tax rate is much higher. Take Sweden, for instance, which has a marginal tax rate of 57 percent. Japan’s is 50 percent and Germany’s is 45 percent—all significantly higher than the 35 percent rate here. Since 2004, the GDP growth rates for those countries have been comparable to ours, often exceeding it. And when it comes to unemployment, we have had a consistently higher unemployment rate than they have since the cataclysm of 2008.

So what should we conclude from this? One of my favorite sayings in life is: Challenge the premise. The entire premise of the Republican worldview is that we must cut marginal tax rates, even if it means starving critical investments and letting the social safety next get frayed. Their argument—in its entirety—about the virtue and necessity of lower tax rates is wrong. When we look at the past 50 years of U.S. history and the record of growth in other industrialized nations, the data prove that the Republicans’ claim of a causal link between low marginal tax rates and economic vitality is flawed.

This false premise is the heart and soul of Gov. Romney's economic agenda. Challenge his premise—it is wrong.

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