Home > Uncategorized > What Really Matters for Growth (It’s Not Tax Rates)

What Really Matters for Growth (It’s Not Tax Rates)

When Republicans talk about economic growth, they tend to talk as if there is only one factor that affects it: tax rates…  Pawlenty asserted that despite reducing revenues by some $8 trillion over the next 10 years – from the lowest level of federal revenues as a share of GDP in 60 years – that his plan would balance the budget. I could find no data or analysis of how Pawlenty’s plan would actually achieve this goal…

What is holding back business investment is not taxes, but poor economic prospects. For some time, members of the National Federation of Independent Business have listed “poor sales” as their number one problem. Businesses are not going to invest, no matter how low the tax rate is, if there is no demand for their output…

The bottom line is that neither taxes nor spending by themselves are the most important government contribution to the investment climate; it’s the budget deficit. Consequently, a reduction in tax revenue which raises the deficit is unlikely to stimulate domestic investment because more money will have to be borrowed from abroad. Conversely, a tax increase dedicated to deficit reduction could well be stimulative, as was the case with the 1982 and 1993 tax increases. Contrary to Republican dogma, rapid growth followed on both occasions.

via What Really Matters for Growth (It’s Not Tax Rates).

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