Are You Aware of the Impact Individual Income Tax Changes Can Have on Economic Growth?

When it comes to the connection between income tax rates and the gross domestic product (GDP), it can come across as a negative relationship. In an open economy, higher skilled workers earn higher incomes and can move around freely and easily. But this also works against progressive state and local tax systems whose goal is to achieve the redistribution of income long term. The odds of an employed head of household successfully finding a potentially better job fit over a year is greater when the tax progressivity is lowered. This decrease in the progressivity of a tax system is linked to an increase in wages. 

Additionally, there is a higher correlation between alterations when it comes to private investment as well as private consumption in conjunction with changes in taxes. The extent of investment measures and expenditure are varied, but the consensus seems to be that when tax rates (and levels) are lowered, consumption and investment go up. Furthermore, there is evidence that when the marginal tax rates are cut, the unemployment rate goes down. 

Coming up in November, voters residing in Massachusetts will decide on whether to amend the state’s constitution or move to transition from a flat rate individual income tax to a graduated rate system. This would be accomplished by enacting a 4 percent surtax (an additional tax required on top of an already existing business or individual tax (whether for a flat or progressive rate structure) on those incomes greater than $1 million. But, here’s the issue: if it turns out that the surtax is approved, any revision to the new 9 percent top marginal rate will mean needing to have another constitutional amendment which can take years to implement.  

When studying the relationship between a macroeconomy, taxes, and people’s responses to rate cuts or rate increases, there is reason to believe that moving from a flat income tax system to a graduated income tax system (or from a lower to a higher marginal rate), that the result is a negative relationship with economic growth. 

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When it comes to providing valuable assistance to you for running your business as efficiently as possible, Corporate Capital, Inc. is ready to help you and your business succeed. Whether you are providing a product or service to benefit your clients, we offer you the expertise that will allow you to maximize the profits from your product or service. We can help from the very moment a corporation is formed and continue as your business thrives. How? We are a one-stop shop for all the important services your business may require, from the day-to-day tasks to reaching your long-term goals. So, what is it we do? For starters, we specialize in the following:

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