Myth: “Tax Cuts For The Rich Create Jobs.”

Myth: “Wealthy people are job creators. When you give tax cuts to the wealthy, it creates jobs. When you raise their taxes, it destroys jobs.”

When we look at the US economic history, overall economic growth has been stronger during periods of higher tax rates.

After Ronald Reagan cut taxes 25% in 1981, unemployment continued to rise for another year and a half and the budget deficit tripled. Two years after the Reagan tax cuts, unemployment was still higher than when he took office.

Bill Clinton raised taxes on the wealthiest 1% of Americans (called the biggest tax increase in history at the time) and invested in our economy. Republicans predicted a new recession and said it would tank the economy. Over the next 7 years everyone prospered. The stock market tripled in value. There were 22 million new jobs created, the federal budget deficit was wiped out and we actually had a surplus which was growing so fast it was projected to pay off our national debt within 20 years. The Census Bureau said the percentage of Americans living in poverty fell every year during the Clinton years – from 13.6% to 9.6%.

On the other hand, George W. Bush cut taxes, mostly for the wealthy. This wiped out the budget surplus and created a massive deficit that reached $1 trillion dollars before he left office. Over the next 7 years we had two recessions, increasing poverty rates, and a net gain of only 3 million jobs.

The data collected from the Bureau of Labor Statistics and Tax Policy Center indicates that “Altogether, in years when the top marginal rate was lower than 39.6 percent—the top rate during the 1990s—annual real growth averaged 2.1 percent. In years when the rate was 39.6 percent or higher, real growth averaged 3.8 percent. The pattern is the same regardless of threshold. Take 50 percent, for example. Growth in years when the tax rate was less than 50 percent averaged 2.7 percent. In years with tax rates at or more than 50 percent, growth was 3.7 percent.

These numbers do not mean that higher rates necessarily lead to higher growth. But the central tenet of modern conservative economics is that a lower top marginal tax rate will result in more growth, and these numbers do show conclusively that history has not been kind to that theory.”

“Economic growth” or “economic growth theory” typically refers to growth of potential output, i.e., production at “full employment“.

Image Credit: Center For American Progress

Jeff (30 Posts)