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Sunday, January 25, 2009

The 2003 "Jobs and Growth" Plan (Tax Cuts) Didn't Work

Larry Mishel on the effect, or more precisely the lack of any effect, of the 2003 tax cuts on "Jobs and Growth":

Tax cut approach has already been tried and failed as stimulus:...[The administration claimed t]he Bush tax cuts of 2003 ... would generate 1.4 million jobs on top of the 4.1 million jobs that were expected to be generated over the eighteen months following June 2003. See [here]...

EPI tracked the initiative’s effectiveness through a website, www.jobwatch.org, and found that it fell far short of its goals. Not only did the promised 1.4 million additional jobs not appear, but the 4.1 million jobs expected with no action also failed to materialize. In all, only 2.4 million jobs were created—1.7 million short of the administration’s projection without their new policy. Thus, by the Bush administration’s own metrics the tax cut program fell short by a total of 3.1 million jobs (149,000 pr month). For an analysis of how the Bush 2003 tax plan (The “Jobs and Growth" plan) fell short of its job claims see [here]...

On what basis can the conservatives who embraced those failed initiatives now claim that tax cuts are the best policy?

It seems Republicans have but one answer to every problem, get government out of the way through tax cuts and deregulation. When they are asked what caused it, whatever it might be, there is one answer, government. When asked how to fix it, whatever it might be, there is but one answer, reduce government through tax cuts and deregulation. For many, especially the politicians, it doesn't matter whether tax cuts will actually fix the economy, the goal is to reduce the size of government by any means, and they see this as an opportunity to do just that. If government is always the problem, then getting government out of the way is always the solution.

For many of the tax cut advocates on the right, this isn't really about job creation. Though job creation will get plenty of lip service, the right doesn't generally believe government intervention in any form, tax cuts or spending, is helpful as far as stabilizing the economy. They believe that cutting taxes can increase economic activity, reducing taxes gets the government out of the way and that will increase growth and jobs, but that is about the long-run and economic growth, it's not about stabilizing the economy in the short-run or about creating jobs to end a recession.

So the tax cut policy isn't really about stabilization policy. There could be jobs that are created from tax cuts, even in the short-run, but in its heart of hearts the tax cut policy is about cutting revenues at every opportunity in an attempt to reduce the size of government. If you doubt this, ask yourself what the right will argue when the economy starts to improve. Suppose we say at some point in the future, ok, now that things are better, it's time to increase taxes back where they were. What will we hear? What we'll hear is how raising taxes will kill the recovery, kill growth, cost us jobs, etc. According to this line of thinking, recessions are good times to cut taxes, but recoveries are horrible times to raise them (note, however, that this is wrong from a stabilization perspective - you should run a surplus in good times to cover deficits incurred in bad times). So once taxes ratchet down, it will be a fight to return them back where they started. That's because the real goal is not stabilization, with stabilization policy taxes would move freely in both directions, it's to reduce the size of government. And since the real goal is something besides stabilization, there's no reason to expect, and good reason not to expect, that the policy this group puts forth will be optimal (or even good) at providing short-run relief.

They already screwed this up once, the initial tax cut stimulus package put into place last spring was too small and poorly targeted, it had all sorts of problems all in the name of appeasing this same group - and here they are trying to muck up the process once again, to hold jobs hostage while they try to get tax cuts in place, even though something like 40% of the package is already devoted to tax cuts. Camel, tent, nose. I think it's time to stand up and say no, sorry, you lost the election, and not by just a little bit. You had your chance and look where we ended up - with a terrible economy, huge holes in the budget making it much harder to respond to the downturn, a financial sector wrecked by your anti-government, self-regulation philosophy, what is it about the past several years that would lead us to have any confidence at all you have the slightest clue how to manage a well-running economy instead of driving it into a ditch, let alone heal one that is broken?

    Posted by on Sunday, January 25, 2009 at 02:25 PM in Economics, Fiscal Policy, Taxes | Permalink  TrackBack (0)  Comments (45)

          

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