Replies

2. Higher taxes on the rich would hurt the economy and slow job growth. False. From the end of World War II until 1981, the richest Americans faced a top marginal tax rate of 70 percent or above. Under Dwight Eisenhower it was 91 percent. Even after all deductions and credits, the top taxes on the very rich were far higher than they’ve been since. Yet the economy grew faster during those years than it has since. (Don’t believe small businesses would be hurt by a higher marginal tax; fewer than 2 percent of small business owners are in the highest tax bracket.)

Taxes on the rich are paid with funds that otherwise would have been saved and invested. These taxes reduce the demand for labor by business firms in comparison with what it would otherwise have been, and thus either the wage rates or the volume of employment that business firms can offer. For they deprive business firms of the funds with which to pay wages.

By the same token, they deprive business firms of the funds with which to buy capital goods. This, together with the greater spending for consumers' goods emanating from the government, as it spends the tax proceeds, cause the production of capital goods to drop relative to the production of consumer's goods. In addition, of course, they operate to reduce the degree of capital intensiveness in the economic system and thus is ability to implement technological advances.

These truths are discovered and demonstrated to be true by the process of reason and the process of deduction from elementary principles. The fact that empirical data show that the economy grew fast during those years of high taxes means that other positive economic forces were operating at the same time as the negative taxes on the rich which were able to overcome the negative effects of the taxes on the rich and were able to cause the economy to grow.This data does not falsify the basic principle about higher taxes harming the economy.