Commentary: Get your tax facts straight
By Zack Robbins
By Zack Robbins
The vehement outcries of conservatives against tax increases are hard to ignore. Their low tax ideology claims that low taxes are essential for economical growth and that this economic growth will increase the wealth of everyone. This ideology sounds tempting--just lower taxes and and all our problems will be solved--but unfortunately the data do not support it.
To start with, the theory is too simplistic. It assumes that humans only care about acquiring wealth and care nothing about their quality of life (e.g. education, health care, access to parks). If this assumption were true, then individuals and businesses would have moved from Minnesota, traditionally a high tax state, to low tax states like South Dakota. Instead, the opposite seems to have happened. In 2011 Minnesota was home to 20 Fortune 500 companies, giving Minnesota the highest per capita concentration of Fortune 500 in the country.
The idea that low taxes will lead to prosperity is also inconsistent with reality. During the post-WWII period, the top federal income tax bracket was 91 percent. According to many low tax ideologues, these record income tax rates should have crippled America's economy; thankfully, that was not the case. Instead, the U.S. experienced an historically unprecedented era of prosperity called the Golden Age of Capitalism, which witnessed average annual GDP growth rates above 4 percent and unemployment rates around 4.5 percent.
Unfortunately, in the early 1970's this golden age began to decline right as the current low tax ideology started making its way into the public policy arena. Since 1970, the US seasonally adjusted unemployment has averaged 6.1 percent, average annual GDP growth has slowed to just under 3 percent (within the last 10 years it has only been 1.8 percent!), and the top federal income tax bracket has dropped to 35 percent.
The last 40 years have for the most part been an experiment for proponents of low taxes. So what has this experiment produced? A national poverty rate that has remained 10 percent since the early 1970's, higher unemployment rates, greater wealth inequality, increased uncertainty about the future, and reduced economic growth rates.
While this experiment was taking place at the federal level, Minnesota was undergoing an experiment of its own. Instead of cutting tax rates, Minnesota kept its tax rates relatively high compared to the rest of the country. What was the result? A poverty rate that has been declining over the last 40 years--currently one of the lowest poverty rates in the country, an unemployment rate that has consistently been below the national rate, an economy has grown at or above national rates, and a quality of life that is among the highest in the nation.
This economic success was not a coincidence, but the result of Minnesota's farsighted investment in public education, which prepared Minnesota's workforce to thrive even as manufacturing jobs started moving South and overseas in the late 1960's. Now, as Minnesota continues its transition to a service-based economy, a well educated workforce is more important than ever if Minnesota wants to maintain its economic leadership.
Given the economic history of the U.S. and Minnesota, it seems strange that so many Minnesota legislators are opposed to raising taxes on the richest Minnesotans, when some of this country's periods of greatest prosperity coincided with historically high tax rates.
Zach Robbins is an Undergraduate Research Fellow with Minnesota 20/20.