The graph shows how taxes and employment have historically worked. If you study intermediate macroeconomics, then you'd have learned about Okun's Law, growth rate models, and the such. Taxes do not play any role in establishing the normal rate of unemployment, nor does reducing taxes induce investment... there's just no correlation. But that's really ephemeral theory for the lay-person.
In actuality, 30+ years of Republican-led tax cuts and Democratic-led progressive tax increases bear fruit to this graph. When taxes were high - prior to Reagan, and during the Clinton administrations - capital investments were up. The incentive to re-invest in order to minimize tax liability was real. So was increased charitable giving.
What changed with taxes...
Once taxes were slashed in the 1980s, we saw the explosion of conspicuous consumption and massive savings by the rich. There was no need to re-invest or increase charitable giving if it didn't lower tax liability. Sad to say, but self-interest seems to fuel altruism.
BUT... and this is a big but... can this model be sustained in the 21st century? If taxes were increased on the highest earners in order to spur re-investment, would that be the same outcome that's been tracked for a few decades?
Unfortunately, there's a strong case for there not being an incentive.
Capital moves effortlessly now. Nothing ties capital to one country or location. With the push of a button, all of your money can be transferred to foreign investments, bank accounts, etc. Sure, there are tax issues with moving money overseas, but they seem to be dwarfed by the possible returns on investment and the tax haven savings.
I remember the Asian Tiger Crash of 1998 very well (I was an exporter to most of those countries). It was all about the quick entry and exit of capital into various Asian economies. Once investors got spooked about lowering ROI and government interventions (as well as some major investment crashes on the US East Coast), capital flowed out of Asia like water through a burst dam. It's just too easy to move money around now.
If there is no incentive to invest when taxes low, and no incentive to keep money in the US if taxes are high, then how do we generate more revenue? How do we incentivize the "job creators"?
I'm curious to your thoughts.
