From Cochrane's January post:
I'm almost as pessimistic as Dan. Sure, raising tax rates can generate more revenue for a few years. But most economic analyses don't look at the long-run, growth effects of tax distortions. The full disincentive effects don't show up for years. If taxes just lower growth a few fractions of a percent, that soon compounds to drastic reductions in income and tax revenue.
Raising tax rates lowers growth over the long term. Sounds right, right? Well, here's U.S. economic growth since the end of World War II:
|Graph #1: A 21-Year Moving Compound Annual Growth Rate|
Growth has been consistently downhill. So we can assume this has something to do with tax rates going up?
|Graph #2: Top and Bottom Individual Income Tax Rates|
Source: National Taxpayers Union
Hard to say.