Monday, October 22, 2012

Bruce Bartlett: Romney’s Tax Plan and Economic Growth

Mike Kimel and Jazzbumpa recently looked at the effect of the 1964 tax cut on growth, and found nothing there.

Bruce Bartlett looks at the tax code changes of 1986, and reaches a similar conclusion:

Real gross domestic product growth was about the same after the 1986 act took effect in 1987 as it was before, and tax reform obviously did nothing to forestall the 1990-91 recession. Unemployment fell, but it had been trending downward before tax reform, and the 1986 act probably had nothing to do with it. Within a couple of years it was trending upward again.

By the mid-1990s, it was the consensus view of economists that the Tax Reform Act of 1986 had little, if any, impact on growth.

Bartlett continues:

In a comprehensive review of the economic effects of the 1986 tax reform act, in the June 1997 issue of the Journal of Economic Literature, Alan Auerbach of the University of California, Berkeley, and Joel Slemrod, the University of Michigan economist, also found that the primary impact was on the shifting composition of income. They could find no significant growth effects. They concluded, “The aggregate values of labor supply and saving apparently responded very little.”

"The primary impact was on the shifting composition of income." Like this, maybe: Less productive-sector income, and more financial sector income.


More Bartlett, from June 2011:

Unfortunately, there’s no evidence that the 2003 tax cut did anything to stimulate corporate investment.


Jazzbumpa said...

Only marginally on-topic, but you will like this.


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