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Effect on Economic Growth of Changes in the Top Income Tax Bracket

June 6, 2019
By David Ranson

This graph shows that the effects of cuts or increases in the top income tax bracket last about 2 years.

This graph depicts the annual consequences on real gross domestic product (GDP) of increases and declines in the top tax bracket. These results show more about the time profile and persistence of GDP effects from tax-rate changes.

The impact on cumulative growth peaks after two years, and then declines. After two more years, all economic paths have converged, and there remains no net GDP difference between the effect of a tax hike and the effect of a tax cut.

It appears that taxpayers are able to change their business practices enough to avoid or mitigate changes in the tax-rate structure, and as a result the economy slowly returns to normal.

Article Tags
Taxes