Wednesday, August 8, 2012

The libertarian dilemma, again

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.


HMN said...


This is OT, but worth watching IMHO:

MGIC Plunges as Insurer Breaches Capital Limit After Loss

“This is an extremely troubled company and its ongoing viability, obviously the markets are putting a big question mark about that,” said Rob Haines, an analyst at CreditSights Inc. “It seems like it’s inevitable that the company will ultimately end up in some kind of regulatory receivership.”

Jazzbumpa said...

People like Cochrane are so wildly out of touch with reality that one is tempted to question their sanity.