June 18, 2013 by David K. Sutton

CHART: Republican Trickle-Down Poppycock: Unemployment Rate vs. Top Marginal Income Tax Rate

Trickle-down economics — It’s easy to say tax cuts lead to jobs and then offer no proof. It’s easy to say those at the top of the economic ladder are the job creators and then award them with tax cuts. But when do we analyze the data?

We’ve lowered tax rates for high income earners for decades and what do we have to show for it? If we are to believe tax cuts for “job creators” will create more jobs, then we should see a correlation between the top marginal income tax rate and the unemployment rate, right? If the narrative of ‘tax cuts for the job creators will create more jobs’ is true, there should be some reciprocity between these two data sets.

source: Bureau of Labor Statistics
source: IRS, Tax Policy Center

I don’t know about you, but I’m not seeing it. Is there any relationship between a lower top marginal income tax rate and the unemployment rate? At a microscopic view, there are year-to-year trends that seem to correlate lower tax rates with lower unemployment rates, but pull back, and you’d be hard-pressed to find any decade-to-decade trends to support trickle-down economic theory. Those yearly trends have more to do with recession cycles than anything else. In fact, if there is anything meaningful to decipher from this chart, it’s that the unemployment rate has spent most of the time above 5% since the top marginal income tax rate dropped from its historic highs in the 40s, 50s and early 60s.

Between 1947 and 2012, there are 21 years where the unemployment rate was below 5% and only 7 of those 21 years occurred in the past three decades, a time when the top marginal income tax rate dropped to 50% or lower. The lowest unemployment rate recorded was in 1952 (2.9%) while the top marginal income tax rate that same year was 92%. The highest unemployment rate recorded (9.7%) was in 1982, which coincidentally is the first year the top marginal income tax rate dropped down to 50% (from 70% the previous decade).

What are we to make of all this? — When Republicans profess there is a connection between lower taxes for high income earners (job creators) and more jobs, they are asserting ideology, not fact. Because there’s no clear correlation between tax cuts for high income earners and more jobs. While not an ironclad correlation, if anything, the data seems to show the opposite.