Taxes and Innovation in America

Commentary An old rule of thumb among policymakers and economists holds that the more the government taxes something, the less of it the economy gets. Recent research from Harvard University, the Harvard Business School, and the University of Chicago not only verifies this old saw, but it also puts some precise figures on it. The academics focus on innovation—which makes it especially pertinent—for innovation is the lifeblood of any economy, especially this one. Their detailed work makes clear beyond cavil that taxes, on income especially, adversely affect innovation—nationally and where it occurs within the country, though it is far from the only factor. Previous efforts to specify the effects of tax on innovation have suffered from a lack of comprehensive data. This joint research effort achieved some precision, however, by applying the considerable analytical abilities of the research team with three newly available data sets: a complete digital record of …

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