Noah Smith, Columnist

Tax Cuts Don't Work the Way Free Marketers Expect

Lower rates do more to stimulate growth when given to the poor and middle class than to the rich.

April 17, 2017 at 12:00 PM UTC

Noah Smith is a former Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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Economists who lean toward the free-market side of the ideological spectrum often say that tax cuts help the U.S. economy by encouraging people to work more. Greg Mankiw, a Harvard economist who earns a very high income from his famous textbooks, has repeatedly claimed that higher taxes will discourage him from working more. The supposed mechanism is simple -- tax cuts raise the amount of money you receive for an hour of labor, making people want to put in more hours.

Others are more skeptical. They point out that the top marginal federal income tax rate has fallen from more than 90 percent in the 1950s and ’60s to less than 40 percent today, but instead of rising, the hours worked by employed people has actually fallen: