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Table: Economic Effects of Changes in the Top Income Tax Bracket

June 6, 2019
By David Ranson

Raising the top personal income tax bracket to 70 percent would reduce GDP by an estimated 11 percent.

We can make a rough estimate of how much real GDP would fall if the top rate were raised to 70 percent, by using the historical data in the first and second columns of the table.

Subtracting the two peacetime decades in which the top rate was cut by more than 10 percentage points (row 4) from the two decades in which the top rate was increased by more than 10 percentage points (row 2), the difference of 69.4 percentage points in tax rate change corresponds to a difference of 21.3 percentage points in the growth of real GDP. That is just about a three rate-point change for each point of change in GDP. According to that rule of thumb, an increase of, say, 33 points in the top rate from 37 percent today to 70 percent would reduce GDP by 11 percent.

 

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