Are Taxes Recessionary?

I recently saw another economist interviewed on the news last night who repeated the same old economic "truth" that all economists seem to believe in: taxes are recessionary. He said it in the context of a discussion of the weak economic recovery that seems to be starting in the US. At the same time as the economy is recovering (GDP is staring to grow) the deficit is increasing. It was in this context that this economist said that, of course, tax increases (to reduce the deficit) are out of the question because that would hurt the recovery.

I want to know why in the world to economists believe this? They must know that the modest tax hike implemented by Clinton (in 1993) had no adverse effect on the economic recovery happening at that time. Moreover, there is data, readily available at the Federal reserve economic data site (http://research.stlouisfed.org/fred2/), that should prove to anyone with a spreadsheet that taxes and growth are, at worst, unrelated and at best positively related (increased taxes being associated with increased growth).

Here is a little analysis I just did on the relationship between annual growth rate (dGDP/dt), annual Top Marginal Tax Rate and annual unemployment rate. I only had unemployment rate data back to 1947. Here are the relationships, expressed as correlation coefficients.

dGDPdt w/Top Marginal Tax 1928-2008 0.28
dGDPdt w/Top Marginal Tax 1947-2008 0.18
Unemployment Rate w/Top Marginal Tax 1947-2008 -0.23

The correlations are not huge; indeed, the second two are not even statistically significant. But I don't see how any economist could conclude from these correlations that taxes are recessionary. And all economists must be familiar with this data, right? It's pretty basic stuff. The first correlation shows that annual growth rate (since 1928) has been _positively_ related to the top marginal tax rate that year (the top rate has been as high as 94%; it's now 35%!). In other words, the observed growth rate of GDP increases when the tax rate increases; the observed relationship between taxes and growth is _non-recessionary_. Of course, this correlation does not mean that high taxes _cause_ high growth. But it seems to me that one is unlikely to conclude, based on this observed relationship, that high taxes cause low growth (recession). Nothing like that is observed.

The correlation between growth and tax rate for the period starting from 1947 (after the depression) is smaller than for the period that includes the depression, but still positive. Since the correlation is not significant, the best one could conclude from this is that there is _no_ relationship between taxation and growth. Yet economists persist in believing (and arguing) that taxes are recessionary. What gives?

I guessed that perhaps the economists mean that taxes are recessionary in the sense that increased taxes lead to increased unemployment. So I got the unemployment data (from 1947-2008) and correlated that with the tax data and found (to my surprise) that the correlation was _negative_; increased taxes are associated with decreased unemployment. This negative correlation is not significant, but that just means that one can't conclude that there is really any relationship between taxes and unemployment. Again, taxes are, at worst, irrelevant (unrelated) to unemployment or negatively related (increased taxes are associated with decreased unemployment).

This is what the data say. Why in the world do economists believe the opposite of what their data says? I think it must be because they trust their theories more than their data, which is rather amazing, considering that economists want to consider themselves scientists. Anyway, here's what might be a relevant aphorism for these economists from one of our great American poets:

Experiment escorts us last --
His pungent company
Will not allow an Axiom
An Opportunity
-- Emily Dickinson