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Global economic boom fueled by tax cuts

The world is experiencing one of the greatest economic booms in history (as can be measured), and one of the factors is falling tax rates in major economies, writes James Pethokoukis for U.S. News &World Report:


Indeed, the global economy is growing at about a 5 percent annual pace, according to the International Monetary Fund, after growing 4.9 percent in 2005 and 5.4 percent last year. By contrast, the global economy grew at a 3 percent pace from 1980 to 2000 and at 4.7 percent from 1960 to 1980.

But one thing making the current world economy more impressive today is that gross global product is three times as big as it was in 1970, when adjusted for inflation. (We're growing off a much bigger base.) And before that? According to the Federal Reserve Bank of Minneapolis, "The first 60 years of the 20th century saw average annual global growth rates of 2.4 percent, of 1 percent for the entire 19th century, of one-third of 1 percent for the 18th century."

This is the story of globalization, of free trade, of the Internet, of China, of India. Then there's this: The 21st century has also seen a global effort to reduce tax rates. Since 2000, according to the Tax Foundation, more than half the countries in the Organization for Economic Cooperation and Development--the group of 30 nations that includes most of America's major economic competitors--have lowered their top marginal rates, reducing the OECD average rate from 45.93 to 42.95 percent.


Lower tax rates are stimulative? In Reagan's day, there was some controversy over this, but empirical testing has borne out the theory repeatedly since, all around the world. Milton Friedman won a Nobel Prize in part for proving statistically what we now consider obvious and intuitive: when you tax something, you get less of it; when you subsidize something, you get more of it.

Tax sales, and you get fewer sales than you would were they untouched. Tax incomes, and their growth is diminished. Give higher welfare benefits for more children, and more are born into families on assistance. Duh.

Thanks to "Bama Jim" Dunn of the "high camp nostaglia" site Do What Now? for pointing out this article.


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Comments (2)

Jim Addison: "when you tax ... (Below threshold)
Drago:

Jim Addison: "when you tax something, you get less of it; when you subsidize something, you get more of it."

Irrelevant. Liberal "logic" is impervious to empirical evidence.

Utterly.


This is the story of global... (Below threshold)

This is the story of globalization, of free trade, of the Internet, of China, of India. Then there's this: The 21st century has also seen a global effort to reduce tax rates.
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