The Wall Street Journal, of all places, recently ran an article by one of its columnists arguing that “low taxes are becoming a problem for the economy.” The author contends that the rich “scrimp on taxes,” and that populist pressure is building to make them pay more.
Apparently, the author has never read any of the years of Wall Street Journal editorials that definitely do not support the notion that low taxes are a problem for the economy. More seriously, the author must not be aware of the years of economic research and history which show conclusively that higher taxes, not low taxes, are harmful to the economy.
For example, the author discusses the wealth tax under consideration in California, and suggests that support for a national wealth tax could grow. Left unsaid is that wealth taxes have failed miserably in Europe, with eleven of the fourteen wealth taxes enacted in previous years repealed. European countries discovered that wealth taxes do not work and are harmful. They encourage capital flight, raise little revenue, and discourage investment, entrepreneurship, and job creation.
The author ignores the very real benefits of lower tax rates, including the three major tax cuts enacted over the last one hundred years which produced extended economic expansions and major economic gains for working people. The Coolidge tax cuts of the 1920s, the Kennedy tax cuts of the 1960s, and the Reagan tax cuts of the 1980s all resulted in increased investment and growth and rising wages and jobs.
More recently, economic research shows that the 2017 tax cuts, including the corporate tax rate reduction, increased business investment by 20% and boosted real wages for two years before the government shut down the economy.
A large body of economic research shows the economic harm of high taxes rates. A National Bureau of Economic Research study found that tax increases significantly reduce GDP. A tax increase of 1% of GDP can lower GDP by 2% to 3%, with investment, wages, and jobs falling sharply.
The Tax Foundation reviewed twenty-six studies going back to 1983 on the relationship between taxes and growth. Twenty-three of the studies found that higher tax rates had a negative effect on growth. Higher corporate taxes, followed by higher individual tax rates, were found to have the most harmful effects on the economy.
The lessons from the past are clear—-higher tax rates, not low taxes, are the real problem. Raising tax rates on the wealthy and American companies to get more money to spend will harm the economy and hurt working families. Higher taxes will just lead to more borrowing and more debt.
Increasing taxes on job creators and the most productive sectors will do long term damage to the economy and reduce everybody’s standard of living. It makes no economic or political sense. A Wall Street Journal columnist should know better.
