Cutting taxes creates jobs: wrong! History shows the exact opposite!

President Obama and Mitt Romney are talking to Americans about taxes. The President wants to raise taxes on those with taxable incomes over $250,000; Mitt Romney does not want to raise taxes on them. Mitt Romney is against raising taxes on those individuals with taxable incomes exceeding $250,000, arguing that it would have a negative impact on job creation. Barack Obama, however, argues that raising taxes on those earning $250,000 will not impact the middle class since taking care of the middle class will grow the economy.

So who is right? Republicans are always saying that taxes are too high and they are killing job creators. President Obama is saying, on the other hand, that, no, it is the middle class that creates demand and stimulates the economy, in turn creating jobs.

The highest marginal tax rate in 1945 was 94%. Now it is at 35%. Similarly, the capital gains tax rate was at 25%; now it is at 15%. So the present tax rates are not at historic highs, as Republicans would lead you to believe, but rather at historic lows.

But do lower taxes create a booming economy? Do lower taxes help businesses grow their businesses and create jobs?

The Republicans have been saying for decades—and this has been unchallenged by the media and even by most Democrats—that if taxes are lowered, it grows the economy and creates jobs.  Examining a graph of the different top marginal tax rates from 1950 to the present time in relation to average real GDP growth, one can see that when those rates were at their lowest, real GDP growth were similarly at their lowest levels.  In fact, at the current top marginal tax rate of 35%, real GDP growth has been at its lowest level in that time period.

However, when the top marginal tax rates were at their highest rates of 75% to 80%, the United States experienced its highest growth rates in terms of real GDP growth.  Although there are other factors involved in the level of GDP growth, the Republican contention that higher taxes would destroy our nation’s economy is not true when examining historical facts.

In fact, even when the tax rates were as high as 90%, the economy still boomed.  It was doing much better than when the rates were capped at 35%.  Now this graph shows the historical relation of tax rates to GDP, but how about their relation to jobs and employment.

Again one sees a similar relationship.  The United States experienced its best years of job creation when the tax rates were at 75% to 80%.  And since the tax rate has been capped at 35%, the United States had the worst job creation rates:  in fact, the country has had a negative job creation rate:  the nation has been losing jobs; and this has been the only time the United States has lost jobs.

The United States has capped the highest marginal tax rate at 35% now for eleven years and it continues to lose jobs.  Tax cuts do not create jobs.  Often times they cost jobs.

When taxes are raised on the rich, history shows that our country does not lose jobs.  Quite the contrary, the nation experienced the highest amount of growth and the greatest increase in employment when the highest marginal tax rates were at their highest levels.

Consequently, the rich are not job creators.  And taxes on the rich does not have a negative impact on economic growth nor on the creation of jobs. 

The Barefoot Accountant
Accountants CPA Hartford, Connecticut, LLC
Certified Public Accountant
Certified QuickBooks ProAdvisor