There are plenty of sophisticated studies that show that there is virtually no impact on investment from higher marginal tax rates on individual income. Other studies (equally (sophisticated) say that high levels of debt are damaging to economic performance, investment, and growth. But, as my graduate econometrics professor once told me, "if you torture the data enough, it will confess." In other words, maybe these studies are doing something high-falootin that is getting the data to tell us something that really isn't there. So, take these scatterplots (pictures) on for size (longitudinal data from World Development Indicators, 1998-2006):
Investment v. Government Debt:
Negative relationship. Classic fiscal-conservative result.
Investment v. Highest marginal corporate tax rate:
Negative relationship, not so bad, but now...
Investment v. Highest individual marginal tax rate:
Nothing!!! Even if there were, it's a positive trendline! Maybe some fancy-pants regressions will help:
|Coefficients||Standard Error||t Stat|
|Highest Marginal Individual Tax||-0.0238||0.031682||-0.75128|
|Highest Marginal Corporate Tax||-0.0927||0.059525||-1.55728|
Whew! At least that straightens out the signs to be as expected: Lower taxes (especially on individual incomes) are only useful for stimulating investment all else equal, i.e. if they don't lead to higher debt levels (exactly what Greenspan said!). Even then the impact of the debt is significant; the effect of taxation is not significant (in a statistical sense - significance roughly requires column 3 (t-stats) greater than 2 or less than -2).
Here's the punchline: anyone who tries to sell lower individual income taxes as a boon to investment is full of hooey (technical term).