Do lower top marginal tax rates create more jobs? The following evidence does not support that proposition. Here’s a graph of historical top marginal tax rates (red line, scale on the right axis) and unemployment rates (blue line, scale on left axis).
When marginal rates were relatively high, unemployment is low. When marginal rates are relatively low, unemployment is high. If the theory of high tax cuts worked to produce jobs it would be fine with me, but the evidence doesn’t support the theory.
I ran a zero-order correlation between unemployment and top marginal rates, r = -.32, suggesting an inverse relationship. That is, when marginal tax rates are high unemployment is low. Lagging the variables didn’t produce any appreciable change in interpretation.
Here’s a graph depicting the ‘line of best fit’ between unemployment rates and top marginal tax rates.
So, where are the facts supporting the proposition that lowering marginal tax rates is an effective strategy for “job creation?”
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