The popular theory for many decades is that tax cuts help to stimulate the economy. However there is evidence to point to the opposite being true. Source
One example of tax cuts harming economy-Alternet wrote:
The brute facts are these:
Large income tax cuts are followed by a bubble and then a crash.
High income taxes correlate with economic growth.
Income tax increases are followed by economic growth.
Moderate income tax cuts are followed by a flat economy.
All of this is especially true as applied to the top tax rates, the amount paid on income that exceeds the highest bracket.
Conversely higher taxes stimulate the economy...Alternet wrote:
1. Hoover During World War I, the top marginal tax rate went up to 73 percent -- not the highest ever, but pretty high.
In 1922, a series of rate cuts began. Down to 56 percent, 46 percent, and finally, in 1925, it went down to 25 percent.
The stock market took off. There was a boom. But the boom was a bubble.
It was followed by the Great Crash of 1929.
There were bank failures and the Great Depression.
Looking at the facts presented, their is some pretty solid evidence to suggest that Tax cuts may actually hurt the economy. I was incredulous at first, and I am not totally sold on this, but it definitely deserves further debate, especially as it flies against popular opinion on tax cuts.Alternet wrote:
The four periods of greatest economic growth in American history, by pretty much any measure, are:
World War II (1941-45): top tax rate varied from 88 to 94 percent
Post-war under Truman and Eisenhower: top rate bounced around from 81 to 92 percent
Clinton years: Clinton raised Bush's top rate of 31 percent to 37 percent and then to 39 percent
First two Roosevelt administrations (1933-40). When Roosevelt came into office, Hoover had already raised the tax rate in 1932 from 25 percent to 63 percent. Roosevelt raised it again in 1936 to 79 percent.
