John Taylor in Favor of Higher Marginal Income Tax Rates? If Not, Why Not?

by Mike Kimel

John Taylor in Favor of Higher Marginal Income Tax Rates? If Not, Why Not?

A couple of weeks ago, John Taylor posted a graph showing that since 1990, there has been a negative correlation between the Investment to GDP ratio and unemployment.

There’s been some back and forth between Taylor and some of the other big boys (some of it summarized at Mark Thoma’s Economists View, and even Krugman has weighed in).

Lots of fun is being had by all, but it seems everyone, especially John Taylor, is missing a key point. If, as he states in his post, “the most effective way to reduce unemployment is to raise investment as a share of GDP” and if we want to reduce unemployment, then we should be raising the top marginal tax rate.. After all, going back to 1929 (that’s as far back as the Bureau of Economic Analysis has data), there’s a quadratic relationship between the top marginal income tax rate and the ratio of private investment to private consumption.

As I note in the post in which that analysis is done (complete with a nice graph):

correlation between the top marginal tax rate the ratio of investment to consumption for top marginal tax rates below 50% is 55%. That is to say, an increase in tax rates increases the ratio of investment to consumption when tax rates are below 50%.

So… raise top marginal rate —> more investment —> lower unemployment. I imagine John Taylor’s endorsement of higher marginal tax rates should come any moment now.

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Cross-posted at the Presimetrics blog.

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