Thursday, June 9, 2011

The Bush Tax Cuts, 10 Years In

Slate's Annie Lowrey gives us an ode to a "colossal failure."  First, the list of promised benefits from ol' G.W. himself:
In 2001, the Bush administration inherited a few years' worth of budget surpluses, so it decided to cut income tax rates, double the child-care credit, and sharply reduce the levies on investment income. The economy then slowed, even entering a brief recession. As a form of stimulus, the administration doubled down, expanding and hastening the 2001 changes. Bush promised that the tax cuts would do a whole lot more than put money in people's pockets—which, in fact, they did. He said they would "starve the beast," forcing Congress to reduce the size and scope of government. He promised they would increase the prosperity of all Americans. He also vowed: "Tax relief will create new jobs. Tax relief will generate new wealth. And tax relief will open new opportunities."
Well, this is almost unfair.  We all know how the story ends, because I'm pretty sure no one is going to be celebrating the first decade of the 21st Century as a time of prosperity, new wealth, and new opportunities.  But let's let Lowrey tell it:
What about the president's claims? Take his pledge that the cuts would spur job growth. To be fair, we'll ignore employment changes during 2008, the year the Great Recession seized the economy. During the 2001 to 2007 business cycle, America's economy enjoyed 52 straight months of job growth. But it was sluggish—in fact, the slowest rate of jobs growth on record since World War II, and just one-fifth the pace of the 1990s.

Then there's wealth. Put simply, the aughts were a decade of income stagnation: The tax cuts failed to bolster most taxpayers' earnings, even before the recession hit. Median real wages actually dropped from 2003 to 2007. Household income from business-cycle peak to business-cycle peak declined for the first time since tracking started in 1967. As documented by my colleague Timothy Noah in his series "The United States of Inequality," this did not hold true for the nation's billionaires and millionaires. Garden-variety high-wage earners saw their income go up. And incomes for the top 1 percent skyrocketed. For some people, obviously, the cuts "generated new wealth," in the president's phrase. But overall, inequality got worse.

That leads to the third metric: Did the cuts "open new opportunities"? It's a vague phrase, but one way to measure it is to look at job growth—and there's nothing to see there. Another way would be to say that the cuts benefited "job creators" (to use the current en vogue phrase), like the nation's start-up businesses. But the number of private-sector jobs created by young companies fell during the Bush administration.

Unfortunately, the tax cuts never translated into robust economic growth, either. Indeed, the aughts saw the worst growth since World War II. From 2001 to 2007, annual GDP growth averaged just 2.4 percent per year, lower than in any other postwar business cycle. The contrast is starker still when judging against the previous decade. In real terms, GDP grew half as much from 2001 to 2010 as from 1991 to 2000.
And Lowrey doesn't even mention that when the tax cuts were passed, they were sold as being "temporary," with a sunset provision to force Congress to renew them or let them expire, a trick that was later used with the horribly-named PATRIOT Act.  Of course, then Republicans vowed to make it political suicide for anyone in either party to oppose the renewal of the Bush tax cuts, even for a Democratic president (so it seems, anyway) and the cuts became de facto permanent.  Thank the Church of Cut My Taxes for that.  But Lowrey's wrap-up is pretty damning in and of itself:
OK, a final attempt at celebration. Did the tax cuts stimulate the flagging economy in the early aughts? Sort of. Tax cuts give a mild boost to the economy, but not a big one. "After the tax rebates in 2001, 2003, and 2008, households [spent] between 25 and 67 cents more for each dollar of tax cut," William Gale of the Tax Policy Center writes. That makes tax cuts "a relatively weak way to help the economy compared to increases in government purchases, for which each dollar of increased deficit turns into an additional dollar of spending."

So, to recap: The Bush tax cuts were followed by low GDP growth, negative median wage growth, and little job growth. Even before the Great Recession, growth in the Bush business cycle was the weakest since World War II. And the cuts cost about $2.6 trillion between 2001 and 2010, according to the Economic Policy Institute—adding to a debt future generations of taxpayers will pay for, plus interest.

By Bush's own metrics, then, the tax cuts were a failure. But perhaps that is because Bush chose such absurd metrics and made such silly promises about tax cuts' economic omnipotence in the first place. To state the obvious, tax cuts are not magic. They can help a strong economy get stronger or help a weak economy pick up some steam. They also have a direct impact on the government budget. But they cannot goose employers into adding millions of jobs, pay for themselves, and arrest the growth of government, all while delivering everyone cupcakes. So perhaps the best we can say about the Bush tax cuts is that they did exactly what we should have expected them to do.
Really?  Tax cuts don't have superpowers?  Stop the presses!  We've got to tell the Republicans Church of Cut My Taxes.  They've been telling us all these wonderful, mystical things that tax cuts can do, and it turns out that even after a decade of sticking with them, they just haven't delivered.  They did, on the other hand, make the rich a lot richer while doing sweet exactly nothing to help the other 99% of income earners.

I particularly enjoy the irony that the supposed party of "small" government had their way for the better part of a decade, and yet actually expanded the bureaucracy more than any administration since Johnson, not to mention launching two hugely expensive wars.  But this time, they say, they really mean it.

Maybe we should all be a little more skeptical the next time the Church of Cut My Taxes tells us that more tax-cutting will save the economy/create jobs/shrink government/feed the hungry/save the whales/give us all a pony, etc.

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