Remember the Joint Session of Congress when Joe Wilson screamed "YOU LIE" at President Obama after he accurately stated that proposed health insurance reforms wouldn't provide insurance for illegal aliens? Of course you do.
Republicans do this all the time: accuse Democrats of fraud while issuing gushers of nonsense themselves. Progressives must continue to flip the script by refuting the lies and insisting on truth.
Today let's unmask and destroy the Republican lie that lowering tax rates will definitely boost the economy.
Look below the squiggle for stark and interesting evidence that this statement lacks any basis in reality.
We know all too well about the Republican addiction to tax cuts, the fix for everything. Got a nasty case of recession? Tax cuts. Feeling a little unemployed? Tax cuts. Need stimulus? Take two tax cuts and call me in the morning.
Did you ever wish we could conduct a nationwide study testing whether lowering tax rates actually increases economic productivity and eliminates joblessness? Republicans would love love love that, wouldn’t they?
But how?
Federal taxation doesn’t make for a good experiment. Here's the problem. Federal taxes apply to everyone at the same time, so there’s no relevant control group. We don't know whether productivity would have changed with or without the federal tax policies in question. So the experts on both sides can offer convenient conjectures as needed to justify their preferred policies.
But what about state and local tax rates? These vary significantly across the nation. So we can use them to test the Republican faith that tax cuts are the ultimate prosperity medicine. Just compare the performance of high-tax and low-tax states, right?
We know exactly what Republicans will claim: States that have the lowest tax rates will have the highest per capita domestic products and the lowest unemployment rates. The reverse will also be true. States with the highest tax rates will have the lowest productivity and the most extreme unemployment. And most of the nation's GDP will come from the states with the lowest tax rates. It must be so.
Republicans have explained to us loudly, clearly and incessantly why this is the case. High taxes scare the living s**t out of the "job creators," who become paralyzed with fear. When they smell high taxes in the air, they go on strike, dropping the economy like Atlas shrugging the globe. Then the "job creators" stampede over to the business-friendly states, whose productivity explodes as they provide full employment for all citizens. From their tax-safe fortresses in places like Texas and Wyoming, the "job creators" look back warily across the border at the jobless, destitute voters who tried to tax their way to prosperity when they should have been working hard to make their states more comfy for the timid but all-powerful producers.
This Republican story is so simple and clear, I can hardly wait to see exactly how the data confirms these predictions.
Drum roll please.
The data is compelling... The statement that low tax rates correlate with high productivity is simply false!
We can factor out federal taxes because they are the same in each state. Looking at the data for state and local taxes, the median rate is about 9.5% What exactly does the data show? No evidence of the correlation claimed, as well counterexamples that refute the contention that lower tax rates increase productivity.
The highlights for the strongest and weakest state economies:
1. The states with the highest tax rates produce most of the nation's GDP.
2. Looking at the 15 states with the highest per capita GDP, nine have tax rates above the median, including double-digit tax and regulatory hot zones like California, New York, New Jersey, Massachusetts and Connecticut.
3. Looking at the 15 states with the lowest per capita GDP, 13 have tax rates below the median, including many red states.
4. Looking at the 15 states with strongest GDP growth rates, 12 have tax rates above the median, including many double-digit blue states such as New York, Massachusetts, Vermont and Connecticut.
5. Looking at the 15 states with the weakest GDP growth rates, 12 have tax rates below the median, including states like Nevada (negative .2 growth) and Wyoming (negative .3 growth) with tax rates among the lowest in the nation.
6. Looking at the 15 states with the lowest unemployment rates, eight have tax rates at or above the median, including Nebraska sporting the lowest unemployment rate of 3.9%, yet shouldering a high state and local tax rate of 9.8%.
7. Looking at the 15 states with the highest unemployment, eight have tax rates below the median, including Nevada, suffering a 14.9% unemployment rate even though it has one of the lowest state and local tax rates (7.5%) in the nation.
Rick Perry and Newt Gingrich have called on America to use the states as living laboratories for democracy. The labs have rendered a decision on the purported correlation between lower tax rates and higher productivity: You lie!
Or as they like to say in Texas:
You can put your boots in the oven, but that don’t make them biscuits.
The data sources for the above are 2009 data from The Tax Foundation (state and local tax rates) and 2010 data from U.S Government Spending.
Click here to see the complete data set.
P.S. We can imagine that our Republican brethren will respond to this data with a variety of explanations introducing other variables into the equation involving timing, geography and specific market conditions. Let us just point out that if any other variables significantly affect production (as they assuredly do), then simply lowering tax rates won't work. If other variables are in play, we need a more sophisticated strategy to produce growth. At that point, it will be time to shut up about tax cuts and get on to dealing with all the other (meaningful) variables.
Another Republican response will be to massage the data so that it shows something different. Suffice it to say that if proving your case requires significant data massaging of the sort engaged in by politically-motivated economists, then the case was empty to begin with.
In other words, if we are willing to assume away reality, then reality will prove whatever we want.