This report summarizes the evidence on the relationship between tax rates and economic growth, referring in a number of cases to more-detailed CRS reports. Potentially negative effects of tax rates on economic growth have been an issue in the debate about whether to increase taxes to address the budget deficit and whether to broaden the base and lower the rates with tax reform. After first distinguishing between short-run counter-cyclical considerations and long-run growth effects, the following section provides some historical data on tax rates and measures of factor supply and growth. This report then reviews the empirical evidence on the major contributors to growth. The final section concludes with a review of dynamic scoring issues. Initially, it is important to make a distinction between the effects of policies aimed at short-term stimulation of an underemployed economy and long-run growth. In the short run, both spending increases and tax cuts are projected to increase employment and output in an underemployed economy, such as the United States today. These effects operate through the demand side of the economy. In general, the largest effects are from direct spending and transfers to lower-income individuals, whereas the smallest effects are from cutting taxes of high-income individuals or businesses. Long-run growth is a supply-side phenomenon. In the long run, the availability of jobs is not an issue, as an economy naturally creates jobs. Output can grow through increases in labor participation and hours, increases in capital, and changes such as education and technological advances that enhance the productivity of these inputs. The remainder of the report addresses this longer-term growth issue. This section summarizes the historical insights about the effect of tax rates on economic growth and selected factors—labor force participation, savings, and growth in investment—commonly associated with economic growth. Although this type of historical analysis is unable to identify causal relationships, it can offer suggestive evidence on the magnitude of the tax effect on these factors. To summarize, the evidence presented in this section suggests that past changes in tax rates have had no large clear effect on economic growth and selected factors commonly associated with economic growth. Because much discussion is focused on the consequences of individuals in the top marginal tax rate brackets who provide much of the saving and entrepreneurial input in the economy, the following charts include examinations of the relationship between labor supply, savings, and growth rates for the top marginal rates. Similarly, there is often a particular focus on capital gains tax rates and savings, so these data presented below include relationships between these variables. Labor force participation rates for men and women have trended in opposite directions over the past 50 years. In particular, for men the labor force participation rate has fallen by roughly 13 percentage points (from 83.6% to 70.3%), whereas the female labor force participation rate has risen by over 20 percentage points (from 37% to 57.4%) over the same time period. Also, during the past six decades, the top marginal income tax rate on labor income has trended downward, from a high of over 90% to today's top rate of 35%. The effective marginal tax rate has fluctuated in a narrower range (between 20% and 30%), with no clear trend. These relationships are shown in Figure 1 . Given the divergent trends in male and female labor force participation rates, it seems unlikely that the downward trend in top marginal tax rates on labor income or the more stable effective tax rate on labor income could be a driving factor concerning labor force participation rates. Taxes could affect the hours (intensity) of work. During the 1965-2012 period (as mentioned above), the top marginal income tax rate on labor income has trended downward and the effective tax rate has fluctuated in a narrower range, while average hours worked has steadily declined (see Figure 2 ). Hours of work also declined in general around the world. This evidence should be used with caution, as hours have trended smoothly downward during the period, while tax changes have been more abrupt and the composition of the U.S. work force has changed markedly. U.S. savings has been generally declining over the past 60 years. Specifically, as shown in Figure 3 , savings as a percentage of national income has declined 14 percentage points (from a high of 12.1% in 1951 to -1.9% in 2009) during the time period. Over the same 60-year period, the top marginal income tax rate and effective tax rate of capital gains income has fluctuated. In particular, the maximum tax rate on capital gains income was 25% through most of the 1960s before rising in the 1970s, eventually reaching a high of 40% towards the end of the decade and subsequently falling to roughly 15% today. Similarly, effective tax rates on capital income fluctuated during the 1960s and 1970s before generally trending lower since the early 1980s. Given the fluctuation in the tax rates on capital gains income along with the steady decline in broader income tax rates from Figure 3 , it seems unlikely that changes in tax rates caused savings as a percentage of national income to steadily fall over this period. Note that maximum overall income tax rates in Figure 1 applied to investment in unincorporated businesses and, during most of the period, to interest and dividends. During most of the 1970s, although the maximum tax rate on earned income was capped briefly at 60% and then at 50%, the tax rate on interest and dividends stayed at 70%. Although not pictured in Figure 3 , corporate tax rates also declined in this period, ranging between 50% and 60% in the 1950s, 40% to 50% in the 1960s and 1970s, 30% to 40% in the 1980s, and around 30% since that time. Over the past six decades, periods of higher average top tax rates appear on the surface to be related to periods of lower rates of growth in real gross domestic product (GDP) and real net fixed investment. As seen in Table 1 , the full 60-year time period can be broken into three shorter time periods (1950-1970, 1971-1986, and 1987-2010) that correspond to periods of relatively high, moderate, and low taxes on labor income (and moderate, high, and low taxes on capital gains). The data show that real GDP growth and real growth in net fixed investment have each declined over the time period, suggesting that periods of lower taxes are not associated with higher rates of economic growth or increases in investment. One concern when using a long historical view for economy-wide analysis is that the choice of time periods may lead to misleading conclusions, as the size and composition of the economy today differs in many ways from the economy in the 1950s. To examine whether this lack of an apparent clear relationship between top tax rates and the rate of economic growth is due to changes in the economy over time, a shorter time period can be used. Table 2 decomposes the most recent time period from Table 1 into three shorter time periods (1987-1992, 1993-2002, and 2003-2007) that correspond to periods of relatively low, high, and moderate income tax rates. Note that the average top marginal income tax rates in Table 2 are more tightly clustered than the tax rates in Table 1 and the time period used ends before the recent recession. Again the data do not appear to support a clear relationship between lower taxes and higher economic growth; if anything, they suggest the opposite (although we do not believe that relationship is causal, in light of other evidence presented in the following section). This section summarizes the theoretical insights and empirical evidence on the forces driving output and growth which supplement the information provided in the historical comparisons. More detailed discussion of various issues is contained in cited CRS reports. An increase in wages or a decrease in taxes may increase or decrease labor supply. The increased after-tax income will, in theory, promote the consumption of more leisure which reduces labor supply, while the substitution effect (labor effort now pays more) promotes an increase in labor supply. The outcome depends on the strength of these opposing forces and is an empirical matter. Empirical evidence has generally found small and uncertain labor supply effects from higher wages. Historical evidence over a long period of time suggests that increased wages result in less work. In 1856 the average workweek was 70 hours, which had declined to 40 hours a week by 1940. Participation has declined for men, although it has increased for women (which may be related to changes in social norms, birth control, marriage, and economies in household production). Econometric studies have found small, and often negative, labor supply responses for men. In the past, a larger and positive response has been found for women, especially married women, but more recent research has indicated small responses for women as well; women are increasingly becoming more like men in their response. Marginal tax rate reductions are more likely than average tax rate reductions to induce a positive supply response because marginal reductions have greater proportional effects on substitution than on income, although this difference becomes small at very high income levels. In general, however, tax cuts still lead to similar effects as wages because both income and substitution effects are small. A study specifically focusing on the affluent found that tax changes have no measurable effect on the labor supply of high income men, who tend to be relatively unresponsive. The effect of taxes on savings is also, in theory, ambiguous. While substitution effects cause a preference for future consumption that increases savings, income effects mean that a given target can be achieved with smaller savings because the after-tax return is larger. Empirical evidence suggests a negligible and possibly negative savings response. Historically the savings rate had been relatively constant until the early 1980s, after which it declined. It declined at the point that reductions in capital income taxes and an expansion of tax preferred savings vehicles (such as individual retirement accounts) were enacted. Studies that examined the savings rate over time found results that were small in magnitude, but uncertain in direction, with a central tendency suggesting no response. Moreover, even at the highest of these elasticity estimates, the savings response would have a very modest effect on output.