But the negative impact is dramatic, and will continue to have adverse effects until we cut taxes on capital and labor, according to some analysts. Capital formation is a key ingredient to productivity growth. From 1982 to 1989, business capital grew at 2.6 percent a year. However, since then, the increase has slowed to 2.1 percent a year. Labor is another important ingredient for growth.
Many economists blame high tax rates for the economic slowdown.
Federal, state and local taxes this year will eat up 42.6cents of the next dollar earned by the average worker, up from 39.1 in 1988 and equal to a 6 percent cut in take-home pay. As a result, savers save less, investors invest less and the rate of capital expansion slows.