Great Graphic: Taxes and Growth

This Great Graphic comes from David Leonhardt at the New York Times.   It shows the US growth with a fiive-year lag.  So, the charts ends with Q2 07 and shows that the average growth rate for the following five years has been 0.6%.  He overlayed the major changes in US tax policy.  

As an side note, Leonhardt notes that the economy was not in a strong position even before the financial crisis hit, which is often dated to the middle of 2007. 

His larger point is that over the past quarter of a century, tax policy and growth do not appear to align themselves as one would intuitively expect.  When one stops and considers it more closely, the results may not be that surprising.  

There are other factors, after all, that impact growth besides taxes. Relatively obvious things, like technological advances, like the computers, or the end of the Cold War played a role.  In addition, tax rates rather than marginal changes may be important.  There are, of course, various types of taxes and there is no reason to think that they all impact growth the same. 

I do not see this as an argument for or against tax increases or tax cuts.  There may be some taxes that ought to be reduced.  There may be some taxes that ought to be raised.  At the end of the day, however, given the US debt and deficits on one hand and the basket of goods that is the government provides, something has to give.  

One of my key interpretative points is that capitalism is about relationships.  And through this crisis, various relationships will be forced to change.  I am thinking of relationships such as the state and citizens, employees and employers, what is private and what is public, and gender relations. Stay tuned.