What Evidence is There That Tax Cuts Create Jobs?

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July 20, 2010 by D Stack

Do tax cuts create jobs? Many people accept this as a given. I did some research of the relationship between tax cuts and job creation. Here is what I found, in a handy dandy table. I’ve simplified things somewhat but you can investigate the sources for yourself.

President Term Payroll Expansion Tax Change Rate in 1st year Rate in last year
Harry Truman 1945-1953 20.1% Top Bracket Increased 88% 92%
Dwight Eisenhower 1953-1961 7% Slight Decrease of Top Bracket 92% 91%
John F. Kennedy 1961-1963 6.7% No Change to Top Bracket 91% 91%
Lyndon Johnson 1963-1969 20.8% Large Decrease to Top Bracket 91% 70%
Richard Nixon 1969-1974 13.6% No Change to Top Bracket 70% 70%
Gerald Ford 1974-1977 2.3% No Change to Top Bracket 70% 70%
Jimmy Carter 1977-1981 13.1% No Change to Top Bracket, slight increase to top bracket income threshold 70% 70%
Ronald Reagan 1981-1989 17.6% Dramatic decrease in top bracket rate, dramatic decrease in top bracket income threshold 70% 28%
George H.W. Bush 1989-1993 2.3% Increase in top bracket rate, top income threshold dropped. 28% 31%
Bill Clinton 1993-2001 21.1% Increase in top bracket, threshold increased 39.6% 39.6%
George W. Bush 2001-2009 2.3% Decrease in top bracket, threshold increased 39.1% 35%

Sources:

For presidents whose terms ended in January for their last year tax rate I used the tax rate for the year previous. (i.e. except for Nixon and Kennedy).

The Reagan-era (and early GHW Bush) tax rate included a 33% “bubble” before the 28% marginal rate kicked in.

The four greatest periods of job growth on this chart are, starting with the greatest job growth, are Clinton, Johnson, Truman, and Reagan. Clinton and Truman had tax increases, Reagan and Johnson had tax cuts. Based on the data, I’m not seeing a connection between top marginal tax rate and job growth. The Truman administration had, by today’s standards, an incredibly high marginal tax rate. Soldiers returned from World War II, causing many to worry about a return to the Great Depression. Yet jobs nevertheless experienced a large net increase during Truman’s presidency.

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