The Catholic University of America
Jul 27 2012

Some Interesting Facts About Marginal Tax Rates and Real GDP

Posted by Ernest Zampelli at 7:17 PM
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- Categories: Economy

"In 1947, the year I was born, unemployment was 3.9 percent. In 1968, when I turned 21, it was 3.6 percent. Let’s not forget all the periods in our recent history when our economy was humming along at high speed, creating the opportunities that made our country the most successful and powerful in the history of the world.”  (From:  Believe in America:  Mitt Romney’s Plan for Jobs and Economic Growth)

Here are some facts.  In 1947, the top income tax rate was about 86%; in 1968, it was 70%.  Below is a chart that depicts the year-to-year percentage changes in Real Gross Domestic Product (GDP) from 1948 to 2011.  Over the 37 year period 1948-1984, the annual growth rate in real GDP was in excess of six percent eight times and over four percent 19 times.  Most of this occurred during time periods when marginal tax rates for the top income brackets were 70% or more.  Post-1984, annual growth rates in real GDP never even came close to six percent.  Over the 27 year period 1985-2011, real GDP grew by at least four percent only seven times, five of these coming during the Clinton years when top marginal rates stood at 39.6%.

Now I know very well that the relationship between marginal tax rates and economic growth is way more complicated than what I’ve described.  But really, it should be enough to cast substantial doubts about the dire predictions from the right that higher tax rates on the wealthy will engender some sort of economic Armageddon.

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