Here's his graph plotting the top marginal tax rate against annual real GDP growth since 1947:
Of course, this is just a simple graph; it's not a dispositive argument for higher marginal tax rates. And it wrongly conflates annual real GDP growth with the productive incentives of workers. For instance, last week's GDP numbers tell us that the economy grew at a healthy clip last quarter – 5.7%. For some, this is a cause to celebrate. But with structurally high unemployment, limited access to credit, and waning consumer confidence, GDP growth has very little to say on whether tax payers should work more or less.
Yet Kwak's overall point remains. For those who argue that higher marginal tax rates are bad for the economy, I wonder if this graph will give them pause. At the same time, I also wonder how someone like Greg Mankiw would respond. He, of course, has argued forecefully that higher marginal taxes create perverse work incentives. From last October's NYT:
The verdict on supply-side economics is mixed. The most striking claim associated with the theory — that cuts in marginal rates could generate so much extra work effort that tax revenue would rise — is unlikely to apply except in extreme cases. But substantial evidence supports the more modest proposition that high marginal tax rates discourage people from working to their full potential.You know what? It seems the verdict on marginal tax rates is just as mixed.
