Friday, November 19, 2010

Bush Tax Cuts Followed By Slowest Economic Growth Since WWII

The Republicans are committed to making the Bush tax cuts permanent, even though they would cost nearly $4 trillion over 10 years, including $700 billion in order to extend them to the richest Americans. How do the Republicans, supposed "deficit hawks," justify going into such debt in order to shovel so much cash at the wealthiest? Traditional GOP dogma holds that tax cuts will stimulate the economy. The wealthy will hire more people and the money will "trickle down."

The eight-year Bush era provides an opportunity to examine whether this theory has any validity. Economics journalist David Leonhardt does so in his article, "Were the Bush Tax Cuts Good for Growth?" The answer is decidedly not–from every economic indicator:

...Why should we believe that extending the Bush tax cuts will provide a big lift to growth?

Those tax cuts passed in 2001 amid big promises about what they would do for the economy. What followed? The decade with the slowest average annual growth since World War II. Amazingly, that statement is true even if you forget about the Great Recession and simply look at 2001-7.

...Here’s a chart ranking five-year periods over the past 50 years, in descending order of average annual growth:


I mean this as a serious question, not a rhetorical one: Given this history, why should we believe that the Bush tax cuts were pro-growth?

Is there good evidence the tax cuts persuaded more people to join the work force (because they would be able to keep more of their income)? Not really. The labor-force participation rate fell in the years after 2001 and has never again approached its record in the year 2000.

Is there evidence that the tax cuts led to a lot of entrepreneurship and innovation? Again, no. The rate at which start-up businesses created jobs fell during the past decade.

...Every available piece of evidence seems to suggest that the Bush tax cuts did little to lift growth....

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