The plans tax hikes correleate with decreased productivity, low employment, and less consumer spending – its terrible for the economy.

Since the 1980s, policies in countries like the United States have often been based on arguments that higher taxes on the wealthy have a negative influence on economic growth.5

Tax Cuts and the Economy

Reducing marginal tax rates to spur economic growth is a commonly used policy with the notion that lower tax rates will give people more after-tax income that could be used to buy more goods and services.

This is a demand-side argument to support a tax reduction as an expansionary measure. Further, reduced tax rates may boost savings and investment, leading to further production and reduced unemployment.

Lowering taxes raises disposable income, allowing the consumer to spend more, and increases the Gross national product (GNP). Consumer spending typically equals two-thirds of GNP.6

Supply-side tax cuts are aimed to stimulate capital formation. If successful, the cuts will shift both aggregate demand and aggregate supply because the price level for a supply of goods will be reduced, which often leads to an increase in demand for those goods.

The National Bureau of Economic Research studies the persistent effects of temporary changes in U.S. federal corporate and personal income tax rates. According to their recent 2022 working paper, a corporate income tax cut leads to a sustained increase in GDP and productivity. In contrast, personal income tax cuts trigger a short-lived boost to GDP, productivity, and hours worked but have no long-term effects.