John McCain claimed during the debates that lower tax rates lead to stronger economies. This is not true.
A report from the GAO includes a short list of high tax rate and low tax rate countries–p. 21. Comparing tax rates to the fifteen largest economies shows that tax rates are not correlated to strong economies: only China has a low tax rate.
World’s largest economies
1 United States
2 Japan–High effective tax rate
3 Germany–High effective tax rate
4 China–Low effective tax rate
5 United Kingdom
6 France–High effective tax rate
7 Italy–High effective tax rate
8 Spain
9 Canada–High effective tax rate
10 Brazil–High effective tax rate
11 Russia
12 India
13 South Korea
14 Australia
15 Mexico–High effective tax rate
If higher taxes support worker education, universal health care, and infrastructure, then it leads to a strong economy. Why are Germany and Japan, with higher tax rates than the US, doing so well? They spend the money wisely. Taxes are not the issue. If low taxes lead to a less healthy and less productive workforce, then the lower taxes will hurt the economy.
the data you are using here is so incomplete as to be nearly worthless. What generates a “large” economy does not translate specifically to “stong” economies. Notice how Hong Kong isn’t at all on this list, even though it’s got one of the world’s strongest economies and lowest tax rates.
Further, there are millions of factors that go into what makes an economy strong, so that focusing on just one (even a big one like the tax rate) and then strength (or more absurdly, size) to determine what the proper path is would create nonsensical data, irrelevant to whether those economies would be stonger with lower tax rates.
Finally, I would argue that lower taxes would almost never lead to a less healthy or productive workforce, and if by some miracle you could present a scenario where it would be true, it would still sacrifice the liberty and/or happiness of the populace for health or productivity.
It’s rare that I disagree so much with you on one of your posts, but I disagree with every level of logic in this post, and you’ve selected one of the few talking points McCain has that he’s generally right about… although his execution of the idea would be unlikely to create a stronger economy, just as Bush promised to lower taxes and spend less, before his administration spent more than any administration in U.S. History
I agree that the data I used is not ideal. I wanted to give a rough sketch of my point, and I don’t have time to search for the best data.
Also true: HK and Singapore are great economies, and not large, and they are not represented in this data. Still, I think it is undeniable that Japan and Germany–completely rebuilt in the last 60 years–are strong economies and they have some of the highest tax rates in the world.
I am not saying that high taxes lead to a good economy. I am trying to bust the myth that lowering taxes is a panacea. The issue is government services–like roads, education, police, and firefighters. If those services are wasteful, then the economy suffers. If those services are anemic, then the economy suffers. The key is not lower taxes–the key is efficient taxes.
I think I agree with hunter. I have heard this talk my whole life about lower taxes and a stronger economy. Over that course of time, however, I have mostly seen it fail.