Friday, May 4, 2012
A graph from How fiscally prudent is "lower the rate and broaden the base"? by Craig Gurian at remappingdebate.org:
Pretty sure I've looked at both the series shown on this graph, separately. But putting them together makes an interesting picture. Funny thing, though: To my eye the graph does *not* show what it claims to show. It does not show that "As effective rates go down, so does tax revenue as a share of GDP". Not to my eye.
Oh yeah, the orange line -- the effective corporate tax rate -- shows a consistent downhill run from start to finish.
And yeah, the blue line -- Corporate taxes as a percentage of GDP -- shows a parallel downhill run. But only until 1982. After that, the blue line runs flat.
After 1982 the blue line runs flat while the orange line continues to run downhill. And it is pretty easy to see that the two lines get closer and closer together after 1982.
This is what I think: I think it makes sense to say "As effective rates go down, so does tax revenue as a share of GDP". I think that is what we would expect to be true. But the graph seems to show that it is not true, or anyway that it is no longer true.
It is particularly striking that the change comes just at the start of the Reagan era. Lots of people might not want to admit that Reagan appears to have stopped the decline of corporate tax revenue as a percent of GDP. But then, it is right there on the graph.
It is possible that what the graph really shows is a sudden slowdown in the growth of GDP after 1982, which pushed up the blue line enough to make it run flat.
It is possible that what the graph really shows is that there was a sudden increase in corporate taxables as a share of GDP after 1982, which pushed up corporate taxes enough to make the blue line run flat.
But it is not possible that "As effective rates go down, so does tax revenue as a share of GDP", because after 1982 the effective rate continued to fall and tax revenue did not.
Posted by The Arthurian at 4:00 AM