The Tax
Foundation's Dr. William McBride published a Special Report in December titled "What is
the Evidence on Taxes and Growth?" McBride conducted an economic literature review of more than
two-dozen peer reviewed academic journal articles from the last thirty years
examining the empirical relationship between taxes and economic growth.
The Special
Report contains a helpful
table listing the referenced studies, summarizing their methodologies and
findings. McBride concluded that, "the results consistently point to
significant negative effects of taxes on economic growth even after controlling
for various other factors such as government spending, business cycle
conditions, and monetary policy."
According
to McBride, "a review of the empirical studies establishes some standards
by which a tax system may be judged." Applying those standards,
McBride judged that "the U.S. has probably the most inefficient tax mix in
the developed world." Here, McBride pointed to U.S. tax policy
regarding personal and corporate income taxes, including double taxation of
corporate income through capital gains and dividend taxes. As explained
in the Special Report,
these kinds of taxes can adversely affect production, innovation, and
risk-taking, thereby harming economic growth.
But
McBride also offers a way forward for U.S. tax policy:
Pro-growth tax reform that reduces the burden of corporate and personal income taxes would generate a more robust economic recovery and put the U.S. on a higher growth trajectory, with more investment, more employment, higher wages, and a higher standard of living.
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