Will Higher Tax Rates Balance the Budget?
As the U.S. debt and deficit grows, some politicians and economists have called for higher tax rates in order to balance the budget. The question becomes: when the government raises taxes, does it actually collect a larger portion of the US economy?
Professor Antony Davies examines 50 years of economic data and finds that regardless of tax rates, the percentage of GDP that the government collects has remained relatively constant. In other words, no matter how high government sets tax rates, the government gets about the same portion. According to Davies, if we’re concerned about balancing the budget, we should worry less about raising tax revenue and more about growing the economy. The recipe for growth? Lower tax rates and a simplified tax code.