| Tyrone Slothrop |
06-29-2004 08:15 PM |
Scary Hilary Quote
Quote:
Originally posted by sgtclub
Honest question. Do you not see the argument that the tax cuts were necessary to offset the effects of (a) the recession (which started anywhere from 1/01 to 3/01), (b) 9/11, (c) the collapse of the capital markets due to multiple financial scandles, and (d) 2 wars?
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Honest answer: No. Not those tax cuts, anyway. If you wanted to pass tax cuts to goose the economy, you would have picked different cuts. As you yourself have pointed out, the biggest effects of many of the cuts have not even been felt yet. In other words, Bush took advantage of the situation as political cover to pass the same tax plan he was proposing when times were good. He gambled that things would improve anyway in time for his re-election bid. So far the gamble hasn't really paid off, since the economy, and in particular the job market, is so far behind where it was.
Brad DeLong has blogged about this any number of times. Here's a representative post of his from May, 2003, quoting The Economist:
Quote:
Bemused
One of the strangest things about the George W. Bush administration is its refusal to propose a stimulus package that would actually stimulate the economy. Nobody believes that this is an administration that would decide that it is more important to pursue economic policies that are good for the country as opposed to those that generate good employment news in the summer and fall of 2004. And here what is good for the country--short-term fiscal stimulus--and what is good for President George W. Bush's reelection chances are perfectly aligned.
So why the continued focus on policies that all serious analysts agree have little effect on employment in the short term? It's a total mystery. It's as if the economists have been unable to persuade anybody else in the White House that economic policies, like, affect, you know, the economy.
Here the Economist piles on, telling its readers that Bush's claims that his program will boost the recovery are simply not credible.
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- Economist.com: Another Bush, Another Jobless Recovery: ...The White House claims that if Congress passes tax cuts worth at least $550 billion over ten years, it would create 1m new jobs by the end of next year. A long-awaited study by the administration's number-crunchers is rumoured to show that one-third of these new jobs would come from eliminating dividend taxation, while many of the rest would come from accelerating cuts in marginal income-tax rates...
Sadly, Mr Bush's claims are not convincing. The notion that a tax plan's ten-year price-tag provides any measure of its efficacy as a short-term stimulus is absurd. The central component of Mr Bush's tax plan?the elimination of dividend taxation?would improve the tax code and, probably, long-term growth, but it would do little to boost the economy now. Mr Bush's people say that ending dividend taxation would raise share prices, which in turn would boost spending. Most economists reply that the boost to share prices would be fairly undramatic (a 5-15% jump is the consensus guess); and any effect on spending would be small and gradual.
For all his hustling, Mr Bush's original plan is being heavily modified in Congress. Both the House and Senate are in the process of passing different tax-cut bills.
On May 6th, the House Ways and Means Committee passed a $550 billion tax package, whose central provision was to cut taxes on both dividends and capital gains to 15%. As The Economist went to press, Charles Grassley, the chairman of the Senate Finance Committee, seemed to have won support from his fellow Republicans for a bill including $430 billion of tax-cuts over the next decade. His bill would exempt the first $500 of dividend income from taxation (which would mean most investors paid nothing). There would then be a sliding scale of cuts for richer investors who pay most of the tax. Altogether, it would cut dividend taxes by only a fifth?which would annoy Mr Bush. Conservatives are also unlikely to be happy with a $20 billion bail-out for the states.
That last provision could win Democrat support. Money for the states is part of Senator Tom Daschle's $152 billion package?alongside tax credits for families and businesses and an extension and expansion of temporary federal unemployment insurance (which the White House is prepared to let expire at the end of May).
In the end, the Republican Congress looks likely to force through a stimulus package that is largely based around tax cuts. Some of these measures may be sensible long-term reforms, and returning money to taxpayers is seldom unpopular. But the stimulus will not create many jobs now, whatever Mr Bush says...
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