Nothing has been vetted more exhaustively than the relationship between tax policy, jobs and economic growth. The combined research of government departments and agencies, think-tanks, academia and private sector sources is voluminous. Even a cursory review of the studies alone compels us to confront a nearly impregnable thicket of data, equations, models, econometrics and endless statistics. It’s mind-numbing. Regardless of where it emanates from, the basic question is pretty much the same: Do tax rates—by adding money when cut or subtracting money when raised—result in economic growth or contraction, meaning more or fewer jobs? These are hotly debated questions. But they also miss the mark. For the average American family, taxes aren’t a textbook issue, they’re a checkbook issue. When moms or dads sit down to pay the bills, they aren’t interested in what economists have to say. They look at the paycheck and try to figure out what they are going to do to make ends meet that month. So with that stripped-down family budget framework as guidance, I had my very capable research assistant from Columbia University, Tara Pandalai, start with fundamentals. She pulled the publicly available economic data of average family income, effective tax rates and gross domestic product (GDP) necessary for this straightforward analysis. The first challenge: Defining a time frame. The economy, tax rates and income levels change substantially over any short time-period. Since those results could be misleading, the view was that the lengthier the better. Conveniently for this exercise, first year where data existed for all three series was 1947. With nearly 70 years in the series [1947 to 2015], the time frame was more than sufficient to run a correlation to see if in fact tax rates had any relationship to long-term economic growth. Hope you didn’t forget that number, 243. Just checking. There was some up and back as to what would be the best measure of economic growth. To borrow from Shakespeare, to use GDP or not GDP, that was the question.Employment growth was the alternative data series to consider. But since GDP is more expansive and expressive of overall economic growth, it was settled to use that. Consulting the Bureau of Economic Analysis as to the best GDP series, the consensus was on real GDP. Moreover, real GDP correlated significantly with employment growth (r = 0.59). Nothing meaningful would be lost using real GDP. (The correlation coefficient "r" measures the robustness of the relationship between two variables. If the value of r is close to zero, typically between -0.1 and +0.1, the variables are said to have no linear or a very weak linear relationship.) It was also decided that using the tax rate applicable to the average family income made the most practical sense. Although there were a myriad of tax rates and filers (i.e., married couples, single heads of household), married people filing jointly tended to represent most filers. Moreover, since rates for all filing classes remained more or less consistent over the period, the effective tax rates on average income for each group didn’t vary all that widely. Finally, recognizing there were specific changes in the code at different times affecting the calculation of taxable income (i.e., change in types or amount of exemptions and deductions) and hence the calculation of the rate, given the length of time under review, these impacts were smoothed. Whether to adjust income for inflation or not was another consideration. The test here was the relationship between tax rates and economic growth, not buying power of dollars, which was another discussion. Not only wasn’t it what was being measured, but also given the length of time under review, inflationary effects would be factored in anyway. So no adjustment. To either the pleasure or consternation of central bankers and politicians, the economy has rarely been shown to shift on [a] dime because of enacting one or another economic policy. Changes in tax rates were not proving the exception. Acknowledging the effects of tax rate changes, either increases or decreases, did not immediately impact on the economy, it was better to use a six-quarter rolling GDP growth rate on a geometric average rather than a same period-comparison. That way any effect of the change in tax rates would be captured by rate of change in GDP roughly a year and half later. There was more back and forth as to whether a longer time-period might be better. Was the six-quarter roll enough time to measure effects? The tax rate on the average American family income hasn’t really changed much over the years. It was around 21% in 1947 and stayed around there until the mid-1960s, when it drifted down a bit, floating between 16% and 19%. Rates stayed in that band for the next 30 years. The biggest move was in 2002, when the rate declined to around 15.5%, where it has more or less stayed to the end of the period, here 2015. Over the same time frame, the nation had 11 recessionary periods. You don’t have to be a Federal Reserve Governor to conclude that if tax rates were basically stable to moderately declining during the same time when there were several recessions, tax rates on the average American family weren’t having much of an effect on GDP. The correlation of r = 0.19 reduces it down to one pretty weak number. The graph illustrates the lack of correlation over time. Average American Tax Rate Since the data were available, correlating the top tax rate and real GDP growth was easy. At the top tax bracket, tax rates on income sources (i.e., dividends, capital gains) as well as available deductions vary greater than that of the average American family. While general observations can be made, it would be inaccurate to draw any firm conclusions between top tax rates and economic growth. However, it is accurate to say that tax rates for the highest earners have experienced a steady decline. The top tax rate dropped from 86.45% in 1947 on income over $200,000 to 39.60% on income over $466,950 in 2015. If the idea that cuts in the top tax rate spur economic growth, the correlation of r = .25 isn’t offering much support. If a picture is worth a thousand words, the graph tells the story. [[GRAPH OMITTED]] GDP growth versus highest tax bracket Consider these two takeaways: First, while tax cuts or increases have some impact, the amount of either spurring or deterring economic growth is often exaggerated. As with any economic policy, there is some impact, but nothing approaching the extent it’s credited with. The second is a logical extension of the first. Given that tax policy’s economic impact is limited, there must be many other drivers of the economy, both specific (such as interest rates set by the Federal Reserve) to broader demographic and technological trends. The U.S. economy is much more complex than just a percent change here or there in tax rates. Let’s get real. No one likes to pay taxes, particularly more taxes. Discussions about tax rates rouse emotions almost as much as discussions about where those taxes are spent. The proverbial bottom line is that the influence of tax rates isn’t as significant as the emotional response to them might suggest. Finally, an explanation of that power-packed mystery number, 243. Add some zeros and a dollar sign and that 243 becomes $243 billion. $243 billion is what GDP totaled in 1947. By [to] 2017, GDP totaled $18,905 billion. Over that period, taxes increased and decreased; wages climbed and dropped; interest rates rose and fell; deficits grew and decreased; inflation, deflation, stagflation, oil crises, wars, recessions and recoveries occurred; social and fashion trends fell in and out of favor; the White House was occupied by twelve different administrations. Through it all, GDP grew. It grew because something other than money drives the undeterred American spirit, spurring it to create, produce and reinvent itself. Taxes be damned.