The Great Tax-Cut Experiment

Has cutting tax rates for the rich helped the economy?

BY GERALD FRIEDMAN | January/February 2013

Since the late 1970s, during the Carter Administration, conservative economists have been warning that high taxes retard economic growth by discouraging productive work and investment. These arguments have resonated with politicians, who have steadily cut income taxes, especially those borne by the richest Americans. The highest marginal tax rate, which stood at 70% by the end of the 1970s, was cut to less than 30% in less than a decade. (The marginal rate for a person is the one applied to his or her last dollar of income. A marginal rate that applies to, say, the bracket above $250,000, then, is paid only on that portion of income. The portion of a person’s income below that threshold is taxed at the lower rates applying to lower tax brackets.)