The Return To Bushonomics
Yesterday, in a 244-to-188 vote, the House approved an $819 billion economic recovery plan written by House Democrats and supported by President Obama. Despite Obama’s aggressive outreach efforts, the entire Republican caucus, along with 11 Democrats, voted against the plan. Afraid of crossing Obama’s high approval ratings, conservatives are claiming that they are enthusiastic to work with him. “We’ve made it clear that we will continue to work with the president to develop a plan that will work,” said House Minority Leader John Boehner (R-OH), who led his caucus in opposition to Obama’s plan. “We just don’t think it’s going to work.” Instead, Boehner and his colleagues pushed for a return to Bushonomics. “We have said let’s do tax cuts, let’s let the American people make the decisions on how they’ll spend the money,” said Rep. Spencer Bachus (R-AL), on CNBC earlier this week.”That will stimulate the economy more than bringing all that money to Washington and then distributing it out in all sorts of government programs.” The alternative proposed by House Republicans yesterday, which was defeated 266-170, was composed almost entirely of tax cuts. “These are the same people who told us the Bush tax cuts were going to lead to nirvana,” said Rep. Earl Blumenauer (D-OR) in response to the conservative focus on tax cuts. On MSNBC yesterday, one of the most prominent proponents of the tax-cut-only approach, Rep. Mike Pence (R-IN), complained that the Democrats’ recovery plan would take “America in a new direction.” Though conservatives might be happy to be free from the “burden” of President Bush, they still seem to be longing for his failed economic policies.
SAME OLD ARGUMENTS: In 2001 and 2003, Bush pushed massive tax cuts through Congress, claiming that they were “vital” to boosting the economy and creating jobs. Though Bush initially sold his 2001 tax cut by insisting “that the federal government was running an excessive budget surplus,” he quickly changed his argument as the economy worsened, claiming they would be “a form of demand-side economic stimulus.” “The economy has slowed down, in which case we need to accelerate tax cuts,” Bush said in a March 2001 radio address. “You see, tax relief will put money in people’s pockets, which will help give the economy a second wind.” “By ensuring that Americans have more to spend, to save and to invest, this legislation is adding fuel to an economic recovery,” announced Bush in 2003, as he signed his tax cut legislation. “We have taken aggressive action to strengthen the foundation of our economy so that every American who wants to work will be able to find a job.”
BUSH’S TAX CUTS DIDN’T WORK: Before he left office this past month, Bush told he U.S. Hispanic Chamber of Commerce that “when people take a look back at this moment in our economic history, they’ll recognize tax cuts work.” But the fact is that they didn’t. As Center for American Progress Senior Fellows Christian Weller and John Halpin noted in 2006, the outcome of the 2001 tax cuts was “the weakest employment growth in decades.” The 2003 tax cuts didn’t fare much better, resulting in job creation that was “well below historical averages.” When Bush’s White House proposed the 2003 cuts, they promised that it would add 5.5 million new jobs between June 2003 and the end of 2004. But “by the end of 2004, there were only 2.6 million more jobs than in June 2003.” As Paul Krugman has pointed out, the belief that Bush’s tax cuts successfully stimulated the economy is a form of mythology. CAP’s Michael Ettlinger and John Irons wrote in September, “Economic growth as measured by real U.S. gross domestic product was stronger following the tax increases of 1993 than in the two supply-side eras” that followed Reagan’s 1981 tax cuts and Bush’s 2001 tax cuts. Indeed, employment growth was much stronger post-1993 than post-2001. The average annual employment growth was 2.5 percent after 1993 and just 0.6 percent after 2001. Unfortunately, the supply-side myth that tax cuts cure all still lives on today, as conservatives complain about progressive approaches to fixing the mess left by Bush.
TAX CUTS ARE INEFFECTIVE STIMULUS: The underlying folly of the conservative push for an all-tax cuts approach is the simple fact that tax cuts are ineffective stimulus. Mark Zandi, a former adviser to Sen. John McCain’s (R-AZ) presidential campaign and the chief economist of Moody’s Economy.com, has argued for months that the “fiscal bang for the buck” of tax cuts is significantly inferior to spending increases. According to Zandi’s research, a corporate tax cut delivers $0.30 in real GDP growth for every $1 invested. In comparison, infrastructure spending delivers $1.59 in GDP for every $1 spent. Zandi isn’t alone in this belief: the Congressional Budget Office “deemed last year that corporate tax cuts are ‘not a particularly cost-effective method of stimulating business spending.’” Despite these economic facts, conservatives like Sen. John Ensign (R-NV) continue promoting corporate tax cuts as the solution. “If we could lower the corporate tax rate, that would be one of the best things that we could do to make American business more competitive in the world and actually help stimulate the economy,” Ensign claimed this week.