December 4, 2010

Simple Questions About Tax Cuts

Back in July, I wrote a post entitled The Land of Greatly Diminished Opportunity, in which I shared a host of quantitative information about wealth distribution, the stagnation of economic class, and reduced spending power to demonstrate that the supply-side paradigm of economic stimulus through the policy of tax cuts is no more than an empty shell game that has produced little - and in many cases, diminished - value for the vast majority of Americans.  

It's not that I believe I have a wide readership or that I'm an influential or even particularly original thinker, but it's striking to me how little of this conversation has even begun to penetrate the national discourse.  Even now, in the wake of the 2010 mid-term elections, as Republicans pledge to block all legislation unless the Bush tax cuts are made permanent for all income levels, almost no one outside the blogosphere seems to be asking a couple of very obvious and very direct questions.

The questions are these: If the Bush tax cuts - the first round of which have been in place since 2001 and the second round since 2003 - are the key to growing employment and prosperity, why did George W. Bush have by far the worst job creation record of any president since Herbert Hoover ushered in the Great Depression?  If the Bush tax cuts mean job growth, why has the country under President Obama - who inherited not only his predecessor's financial collapse, but his tax cuts as well - continued to wallow in unemployment?

Defenders of the tax cuts may note that Gross Domestic Product (GDP) - that favorite shorthand for the robustness of the national economy - rose from 2000 to 2009.  But that's a measure whose use is based on convenience more than anything else, and one that is demonstrably full of pitfalls.  As Cornell University economics professor Robert Frank put it:
When you have a crime wave and people go out and buy more expensive locks for their doors, that makes GDP per capita go up, and it certainly doesn't seem to correspond to an increase in welfare. When pollution goes up and we have to spend more to deal with the problems caused by that, an increase in GDP is reflected in that.
Even if one accepts the premise that tax cuts spur an expansion of GDP - which, given the fact that U.S. gross domestic product was growing at a healthy clip right up until the financial meltdown, ought to give its advocates pause - that's not the claim being made by those backing the extension of President Bush's tax policies.  They continue to tout the necessity of making the Bush tax cuts permanent in order to create jobs despite zero evidence of any correlation between those policies and job creation.

So, again: Why, after 30 years of tax cut-driven, supply-side policy dating back to the Reagan years, does the average American have less purchasing power today than he did during the Carter Administration?  And just how long are we supposed to wait for the now-nine-year-old Bush tax cuts to kick in?


lokywoky said...

I love your graph! I have been asking that question of everyone I talk to as well - where are the jobs? If tax cuts for rich wienies produce jobs, where are they?

I think they should just junk that whole package of stuff. Dare the Republicans to filibuster extending unemployment benefits - and make sure there is an extension for the 99ers as well, and then see who blinks.

After January 1, change the filibuster rules in the Senate - and pass some stuff. Then dare the Republicans in the House to follow suit. Let them be the ones to explain to the country why nothing is getting done for a change.

Aaarrrgh! Never happen of course.

PBI said...

I agree.

It's not that compromise can't or shouldn't happen, but the idea that Obama's capitulatiion is the best we could get is nonsense.