Conservative media advance dubious claim that Bush tax cuts drove economic recovery

››› ››› MIKE BURNS

Conservative media have pushed the dubious claim that the Bush tax cuts were responsible for economic recovery. In fact, economists have stated that the Bush administration's tax policies failed to make the economy grow faster and contributed to a decline in median household income.

Conservative media advance dubious claim that Bush tax cuts spurred economic recovery

IBD: Bush tax cuts "were responsible for the economy's recovery from the triple whammy of the 1999-2000 stock market meltdown, the Y2K debacle and the 2001 recession." In an August 6 editorial titled "The Propaganda of Incompetents," Investor's Business Daily claimed that the Bush tax cuts "were responsible for the economy's recovery from the triple whammy of the 1999-2000 stock market meltdown, the Y2K debacle and the 2001 recession." From the editorial:

Instead of slashing spending, as common sense and economic reality would dictate, some want to let Bush's 2001 and 2003 tax cuts expire. Those cuts were responsible for the economy's recovery from the triple whammy of the 1999-2000 stock market meltdown, the Y2K debacle and the 2001 recession.

Erickson: Bush tax cuts "helped the economy both recovery from the 2000-2001 recession and spur some of the greatest economic activity the nation has ever seen." In a July 27 RedState post, Erick Erickson claimed that "after the 2001 initial tax cuts, the annual growth rate went from 0.3% in 2001 to 2.5% in 2002. By 2004, GDP growth was the highest in 20 years." Erickson further claimed that "after the 2003 tax cuts, the unemployment rate fell to the lowest level since World War II. Let me repeat that: the Bush economic program created the lowest unemployment level ever." He concluded: "The Bush tax cuts, objectively, helped the economy both recovery [sic] from the 2000-2001 recession and spur some of the greatest economic activity the nation has ever seen."

Economists say Bush tax cuts failed to produce substantial economic growth

Nobel laureate Krugman: "But the real source of the expansion was the housing boom, which had very little to do with the tax cut." In a January 14, 2008, blog post, economist and Nobel Prize winner Paul Krugman wrote that "the real source of the expansion" after the 2001 recession "was the housing boom, which had very little to do with the tax cut":

There were two main Bush tax cuts -- EGTRRA, enacted in mid-2001, and JGTRRA, enacted in 2003.

[...]

EGTRRA arrived in the middle of a recession, but that was an accident. It was devised in 1999, when the economy was booming, to defend Bush's right flank against Steve Forbes. During the 2000 campaign, Bush sold it as a way of returning budget surpluses to the people, with not a hint that it had something to do with fighting recession. The recession story was an after-the-fact reinvention.

And EGTRRA didn't seem to help all that much. Formally, the recession ended in late 2001, but most labor-market indicators continued to worsen into mid-2003.

JGTRRA, which mainly cut tax rates on capital gains and dividends, was followed by a real recovery. And the Bushies naturally claimed the credit. But the real source of the expansion was the housing boom, which had very little to do with the tax cut.

Krugman: "But even now real G.D.P. is considerably lower than most people thought it would be back when President Bush was selling his tax cuts." Krugman wrote on October 18, 2005, that "[w]e had a recession followed by slow growth in the early Bush years, then faster growth after that as the economy recovered. But even now real G.D.P. is considerably lower than most people thought it would be back when President Bush was selling his tax cuts." He added: "At the end of the 1990's, people thought that the economy would grow at rates similar to those of the previous few years -- probably at more than 3 percent a year. In fact, economic growth since 2000 has averaged only about 2.5 percent, which is below expectations."

CAP paper finds that "supply-side policies failed to deliver what supply-side theory predicted" regarding wage growth. As Center for American Progress' (CAP) Matthew Yglesias has noted in response to Erickson, in a September 2008 CAP paper analyzing the impact of supply-side policy, Michael Ettlinger, Vice President for Economic Policy at American Progress, and Economic Policy Institute's John Irons wrote:

Even during the period of expansion wages were often in decline in the first supply-side period. In the second period, wages were also in decline for portions of the period, and never strong. In the post-1993 period, wages were in decline at the start but wage growth grew substantially over the period. With such dismal wage growth during supply-side periods, supply-side policies failed to deliver what supply-side theory predicted.

CAP's report also included the following graphs based on Bureau of Labor Statistics data comparing earnings growth during the Bush, Clinton, and Reagan eras:

bushyears

Economists: Bush tax policies did not stop decline in median household income

U.C. Berkeley's Delong: There was "not a damned thing [Bush] did to help" increase median household income. In an August 26, 2008, blog post, University of California-Berkeley professor Bradford DeLong wrote:

2000-2007: the first business cycle during which median household income in America falls from peak to peak:

median

http://www.census.gov/prod/2008pubs/p60-235.pdf

It's not all George W. Bush's fault, but I can think of a number of things he did to hurt and not a damned thing he did to help.

Krugman: "In 2007, at the height of the 'Bush boom,' such as it was, median household income, adjusted for inflation, was still lower than it had been in 2000." In a July 22, 2010, New York Times column, Krugman wrote that the "[t]ax cuts never yielded the promised prosperity, but along with other policies ... they converted a budget surplus into a persistent deficit." Krugman later wrote: "In 2007, at the height of the 'Bush boom,' such as it was, median household income, adjusted for inflation, was still lower than it had been in 2000."

CAP: "Average annual real median household income growth was greatest after the 1993 tax increases," but was much lower after 2001. The 2008 CAP paper by Ettlinger and Irons found that the "Average annual real median household income growth was greatest after the 1993 tax increases, at 2.0 percent annually compared to 1.4 percent after 1981 and 0.3 percent after 2001," when supply-side theory tax cuts were enacted. The paper further stated:

In the parallel periods of economic expansion (four years starting in the 10th quarter of expansion for 1981 and 1993; three years in the case of 2001 because of data limitations), average median income growth was 2.3 percent in the post-1993 era, 1.2 percent in the expansion after the 1981 supply-side tax cuts, and 1.1 percent in the supply-side era that began in 2001.

CAP also includes a graph based on Census Bureau data to show that "income may have trickled down during the supply-side eras but it flowed at a much more robust rate during the non-supply-side period."

trickledown

Posted In
Economy, Jobs, Wages, & Unemployment, Taxes
Network/Outlet
Investor's Business Daily
Person
Erick Erickson
We've changed our commenting system to Disqus.
Instructions for signing up and claiming your comment history are located here.
Updated rules for commenting are here.