Tax cuts are the key to job creation, or so Mitt Romney, running mate Paul Ryan and the 2012 Republican platform all say. But what does the empirical evidence show? Is the rhetoric in line with the known facts?
Studies examining the impact of cutting personal income tax rates on job growth or economic activity generally have been inconclusive, said Will McBride, chief economist for the Tax Foundation.
Owen M. Zidar, a graduate economics student at the University of California at Berkeley, and a former staff economist on the White House Council of Economic Advisers for President Obama, has taken another crack at it, sifting through the data, using the National Bureau of Economic Research’s tax simulation model. Zidar looked at state level income and economic data.
He reasoned that “if tax cuts for high income earners generate substantial economic activity, then states with a large share of high income taxpayers should grow faster following a tax cut for high income earners.” The data show that tax cuts at the top, though, do not result in faster growth in states with more high-earners.