Changes in tax rates will alter behavior, for consumers, investors, and businesses. Increasing rates generally hinders economic growth, lowering them encourages it. To be sure, the exact effect is hard if not impossible to determine, because there are a host of other factors involved. And the nature and extent of the rate change has a lot to do with it too, as does the business climate and mood of the country. We can talk about the Clinton tax hikes and how the economy grew anyway, perhaps in another thread or later in this one. But the truth is that the economy was in a different place then; what worked then won't work now.
In fact, two studies released this year predict that raising tax rates on high-income families and small businesses would hurt the economy. The tax rate increase was proposed by President Obama and involves raising the top two marginal tax rates to 39.6 percent and 36 percent, respectively.
The first of the two studies was performed by Ernst and Young, a large consultancy, for a group of clients representing small businesses. They used Ernst and Young’s proprietary macroeconomic model to evaluate the long-run economic cost of the proposed tax increase, along with tax increases on dividends and capital gains.
The second study was performed by the Congressional Budget Office (CBO) and focuses on the short-term impact of the tax increase on high-income taxpayers. The CBO report must be read carefully, since the baseline is current law, in which tax rates will rise across the board.
The Ernst and Young study predicts that the tax increases will slow investment, resulting in slower growth in employment and wages. Compared to their model’s baseline predictions, the higher-tax economy would have 0.33 percentage point lower employment after 10 years and would asymptotically approach 0.5 percentage point lower employment. In terms of today’s population, that would be 710,000 fewer people holding jobs. In addition, real wages for those with jobs would decrease by 1.8 percent on average.
Because the effects take place over time, they may seem small in any given year, but they build. Long-run models don’t focus on the timing with which effects come into play. However, based on their 10-year figure, a back-of-the-envelope calculation shows that the model probably predicts more than 2.6 million job-years lost in the first decade. If strong effects of the tax increase are felt immediately, as the second study suggests, then the lost job-years in the first decade might be around 3.4 million.
The CBO report estimates that a year from now, the economy will have 200,000 fewer jobs with President Obama’s tax increase than under an extension of current tax rates.
How does the 200,000 job loss predicted by CBO compare to the 710,000 job loss in the Ernst and Young study? Like apples to oranges. Not only are the time frames different, but the key economic mechanisms in each study are different. Nonetheless, despite asking different questions, the two studies get the same answer: Higher taxes slow job growth.
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Feb 7, 2013 12:05:17 GMT -5
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Feb 7, 2013 12:05:22 GMT -5
LadyGunSlinger: Your psychobabble is just that and shows you don't know shit about a woman's body.
Feb 7, 2013 12:27:10 GMT -5
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Feb 7, 2013 12:37:53 GMT -5
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Feb 7, 2013 12:44:55 GMT -5