The Impact of Personal Income Tax on Real Gross Domestic Product in the United States of America

This article discusses income tax and its impact on economic systems, detailing the case of the United States of America and personal income tax. The purpose of the article is to examine the impact of personal income tax on real gross domestic product in the United States of America in order to develop a model for such a relationship for other highly developed countries. The method applied to examine this relationship is an econometric model using the Classical Least Squares Method, tax data representing the values of real gross domestic product, and the percentages of personal income tax rates for the lowest-earning (lowest rate) and highest-earning (highest rate) groups in the United States of America between 1947 and 2024. Based on the results of the presented model, it is possible to conclude that personal income tax had an unambiguously negative impact on real gross domestic product in the United States during the period under study, regardless of the level of income that was taxed (lowest and highest earners). The impact was –1.64% (±0.28%) of the value of real GDP from each one percentage point increase in the tax rate for the highest earners and –3.57% (±1.26%) of the value of real GDP from each one percentage point increase in the tax rate for the lowest earners.