The Influence of Tax Rates
In a previous post I investigated the variables that influence unemployment. The first variable was tax rates. Many people, including very influential people and even candidates for the President of the United States, make the statement that lowering taxes will increase the number of available jobs. Their rationale is that lowered taxes will make it easier to compete in the market so production will be up and hence jobs will rise and unemployment will fall. What actually happens is often the exact opposite and instead of the extra money going to increased productivity, it goes to increased profitability. In fact, if you examine the history of the US in recent years, increasing taxes (not lowered taxes) were almost uniformly followed by lowered unemployment. Another worry expressed by many is that the tax rate in the US is too high. In fact, as a percentage of GDP, the US has one of the lowest tax rates in the world. Corporate tax rates in the US are currently fairly high compared to other developed countries. But a comparison of countries with high and low corporate taxes shows that unemployment is unrelated to the corporate tax rate.
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