Two methods are employed to examine the correlation between the top statutory tax rates and the various measures of economic growth. In both cases, the correlation between two variables is determined; causation, whether changes in one variable cause the other variable to change, is not determined. The top statutory tax rates are marginal tax rates—they indicate the proportion of an additional dollar of income that is paid in federal income tax. Economic theory posits that it is the marginal tax rate, not the average (effective) tax rate, that affects decisions regarding work, saving, and investment. 16 The average tax rate has.
