Negative Impact of Income Tax on Economic Growth

Seventh College, University of California-San Diego, San Diego, California, 92122, United States

^* Corresponding author: wefang@ucsd.edu

Abstract

In the intricate development of global trends, economic growth is a crucial part shaped by the factors all around from indicators like Gross Domestic Product (GDP), Gross National Income (GNI) to policies for taxation, exportation, social welfare and so on. Among them, taxation is an interesting topic discussed frequently by analysts and economists, which also contributed to wealth redistribution and inequality as important considerations. This article focuses on researching the impact of income tax on economic growth, including individual income tax and corporate income tax. The purpose of this research is to figure out whether cut in tax promotes economic growth in the United States. The results show that income tax rate indeed have a negative relationship with economic growth rate. The research’s data specifically shows how GDP shift up or down with the change of consumption, investment, employment rate, and so on. Cut in taxation somewhat promotes the GDP growth, while people are more willing to consume, invest, and governments are more abundant in funding. Finally, this research suggests the policy maker to consider the lagging effect of taxation policy on economic growth and timely adjustment of taxation structure progressivity, and further research and development.