In a piece in WaPo today, I note in passing that there’s no persistent correlation between top tax rates and growth rates across the US time series, nor in oft-cited international data from Saez et al. This is widely understood among empirical public finance folks, but just in case, here are a few figures.
As Krugman did the other day, I’m using top marginal income tax rates and 10-year, annualized growth rates of real GDP per capita.
First, as Paul’s figure suggests, here’s a scatterplot that looks pretty random. One can, of course, plunk a regression line in there, and it has the “wrong” slope (higher rates associated with faster growth). To be clear, I neither think nor claim that higher top rates lead to faster growth (though such a case is sometimes made). These are just correlations. More on that in a moment.
In fact, 2o-year rolling correlations have a little something for everyone, which again, shows the absence of any systematic relationship supporting the high-top-rates-kill-growth story.
Moreover, I wouldn’t dismiss the simple correlations. My experience in this sort of work is that if the correlations aren’t there at this level over long time periods, you often–not always, of course–have torture the data to find them. In they are there, then you must check to see if the correlation is a function of a statistical problem (e.g., serial correlation) or a missing control variable. But if they’re not, it’s often telling you the argument that they are is going to be a heavy lift, very possibly involving more confirmation bias than honest analysis.