So Much For The Idea That Cutting Taxes Leads To Higher Savings And Investment

Is it true, as those who call for more tax cuts often assert, that lower taxes lead to higher savings and increased business investment?

Paul Kasriel of Northern Trust reports, you decide:

From 1955 through 2008, the median eight-year compound annualized growth in real business fixed investment expenditures was 4.325%. In the eight years ended 2008 the compound annualized growth in real business fixed investment expenditures was 2.1%. What were long-term capital gains and top personal marginal income tax rate doing in the eight years ended 2008?

Business Investment and TaxesBusiness Investment (red) and Tax Rates (Blue, Green)

Photo: Northern Trust

From 1955 through 2008, the median eight-year moving average personal saving rate was 8.1%. In the eight years ending 2008, the average personal saving rate was 2.9%. What were long-term capital gains and top personal marginal income tax rates doing in the eight years ended 2008?

Personal Savings and TaxesPersonal Savings Rate (red) and Tax Rates (Blue, Green)

Photo: Northern Trust

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