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Do Tax Cuts Work -- How about Some "Evidence-Based" Policy?

Do Tax Cuts Work -- How about Some "Evidence-Based" Policy?

April 4, 2005

From the business section of yesterday's New York Times, required reading for anyone who thinks tax cuts spur economic growth:

"Despite the widespread notion the taxes harm the economy, no one has actually been able to back that up. ... over all, there is surprisingly little evidence that tax rates are an important factor in determining the nation's economic prosperity. ... Over the last 30 years, economists have undertaken hundreds of studies to determine whether taxes hurt the economy. So far, they've turned up little to convict taxes of the charge. After reviewing the literature on the topic in 1993, two economists, William Easterly of New York University and Sergio Rebelo of Northwestern, concluded in a joint paper that "the evidence that tax rates matter for growth is disturbingly fragile." A leading tax specialist today, Joel B. Slemrod of the University of Michigan, would agree. He notes that in the 20th century, a rising tax burden in the United States and other developed countries went hand in hand with rising prosperity. ... Looking at the data from 1950 to 2002, the authors found that periods of strong productivity growth actually occurred when the top tax rates were the highest. And they showed that, on average, high-tax countries are the most affuent countries. ... After study of the tax cuts of the Reagan years, most economists agree that taxes don't play a big part in how hard Americans work. While the study of savings is less precise, large effects from tax incentives haven't been measured. ... reform based on the notion that taxes are bad for the economy is just that: a notion not backed by strong evidence. And the costs of ignoring experience in favor of hope can be high: mounting deficits, decaying infrastructure, inadequate investment in public education and research."
-- Anna Bernasek, Economic View, New York Times, 4/3/05

Not to mention, a government that watches the numbers of uninsured rise year after year and takes no action to address it. In Washington, President Bush pushes huge tax cuts for the wealthy while seeking to cut Medicaid by $16 billion. In Massachusetts, Governor Romney pushes income tax cuts and refuses to restore dental services for more than 550,000 poor adults. All in the name of "economic growth." In health care, there's a big, legitimate cry for "evidence based medicine." Seems we could use some "evidence based policy" as well.