I’m working with some classmates to get to the bottom of the real-world effects of tax rates on economic health (as measured by GDP). I think that this graphic is one of the best (and funniest) that I’ve come across to debunk the Laffer Curve:
In the end, cool headed folks on both sides of the aisle can probably agree that economic health depends on a whole lot more than the corporate tax rate. But Laffer sure continues to lure people in…
I put this chart together today, using tables from the Bureau of Economic Analysis and the FY 2009 Budget:
Note that tax cuts under GW Bush actually decreased tax receipts and coincided with only minor GDP growth in 2001. Also note that GHW Bush tax increases actually coincided with increased GDP growth in 1990. Other forces are at work — global macro trends, the availability of off-shore havens, labor elasticity, the cost of capital — all these things likely swamp anything less than 8-9% changes to tax rates. Absent from this graph, of course, is the US federal deficit, which has grown most under Reagan and now GW Bush, helping to crowd out the cash-raising of companies in the global marketplace.
