Tax cuts driving economy? Don’t buy it

Marketplace Staff May 11, 2006


GLENN HUBBARD: Cutting capital taxes is a good idea

STEPHEN MOORE: The rich pay more taxes

LEN BURMAN: Under the sheltering lie

KAI RYSSDAL: Once Congress finishes with that $70 billion tax-cut package we mentioned at the top of the program, it’ll land on the president’s desk. And he’ll be happy to see it. The White House has made lower taxes the mainstay of its economic policy. President Bush says the economy’s strong. And tax cuts are the reason. But economist and commentator Brad DeLong says don’t be fooled.

BRAD DELONG: As is often the case with this administration, there are two reasons for doing things. One is the real reason and the other is the ostensible reason.

Bush once said to a smug, well-fed, and well-dressed crowd: “Some call you the rich. I call you my base!” The real reason for tax cuts is that people making at least a million dollars would be sad if they didn’t get $42,000 off of next year’s tax bill.

The ostensible reason — the one they give us — is that tax cuts jump-started the economy right after the 2003 tax cut. Without this tax cut, they say, the economy will stall and a recession will threaten.

Don’t buy it.

Just think back. In 1981 the claim was that the Reagan tax cut would set off an economic boom. Instead, the 1980s had the slowest rate of productivity growth in America since the Civil War.

In 1993, the claim was that Clinton’s tax increases would send the economy into recession. Instead, the rest of the 90s saw the fastest economic growth in America in 30 years.

Yes, the economy has been doing relatively well since 2003. But a stopped clock is right twice a day.

The reasons that the economy has been doing relatively well over the past three years have everything to do with the underlying technological revolution in computers still centered in Silicon Valley.

Those computers reduce manpower and increase productivity. That saves money and helps boost record corporate profits.

The economy’s also humming along because of the availability of cheap money thanks to the Federal Reserve. And all that cash sloshing around at corporations improves business executives’ confidence.

The tax cuts have little or nothing to do with Bush administration economic policy. Don’t let them trick you: We don’t need to give a $42,000-a-year present to anyone making more than a million a year to stave off recession.

RYSSDAL: Brad DeLong is a professor of economics at the University of California at Berkeley.

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