"Does this story prove that raising taxes helps GDP? No. Does it prove that cutting taxes hurts GDP? No.
But it does suggest that there is a lot more to an economy than taxes, and that slashing taxes is not a guaranteed way to accelerate economic growth."
Yes, and I also read the title and first few lines, which suggest a different conclusion than the article itself. This is a very common practice in science journalism -- the title and first few sentences lead the reader to one conclusion, and the body of the article is full of perfectly appropriate qualifiers that most readers never see or appreciate.
The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.
Seems to match the title pretty well.
Except for an uneducated or insufficiently skeptical reader -- and the title ought to be "Tax Cuts Don't Necessarily Lead to Economic Growth". To say that tax cuts don't lead to economic growth is to make an unsupported, absolute claim and tell a half-truth.
My problem is with the superficial impression created by the first few lines and the graph. Remember that most readers don't read beyond the abstract. This is a fact that, instead of being accommodated by science writers, is exploited.
Not to broaden the topic unduly, but I often see articles that say some cause A is "linked" to some effect B. "Linked" is a tricky word because, strictly speaking, it doesn't mean A and B are really linked in the cause-effect sense, but many people understand it that way.
A recent article said, in effect, "Marijuana use linked to IQ decrease". It's obvious what typical parents will make of that. But the actual study didn't "link" the two in the way the title and introduction did.
Assertion: "high" (greater than 50%?) marginal tax rates make economic growth impossible.
Evidence: Top tax rates between 1940 and 1980 were between 70 and 90%. Growth was higher than it was after 1980.
Conclusion: the assertion about the harmful effects of a high top/marginal tax rate is false. (I think this process is called "induction").
Note that this does not prove that high tax rates are beneficial, only that they are not harmful.
It's certainly possible that the general slowdown since 1980 is due to other factors, such as growing scarcity of cheap energy and other materials. But investigating alternatives will screw with the livelihood of somebody in the top 0.01% income earners, so one might argue it's harmful to your health to push too hard for such :-)
True evidence-based proofs, the way its done with science, requires that you test one variable. In the example above you'd have to have a parallel economy where all else was the same except the tax rate. Unfortunately this is impossible, but this does not mean we get to change what "proof" means. Economics would work much better if everyone came to terms with the fact that it is untestable and was honest with themselves that all opinions regarding it are just beliefs, regardless which side you fall on.
Also, one could argue that a property tax would be better than an income tax as a way to enforce maintenance of the commons and to provide infrastructure and an educated work-force. (I tend to favor use of taxes as "investment", rather than "money for nothing")
I'm certainly not saying that's the only explanation, only that we don't know. But the article argues that the cause -- tax increases -- produced the effect -- economic growth. It is equally likely that the relationship is reversed.
This is what prevents economics from being a science, and why widespread science illiteracy makes us all fools.