This time from David Limbaugh. Limbaugh writes the following,
It’s past time for President Bush to make a strong push to extend his income tax rate reductions before they expire in a few short years. The tax cuts have been instrumental in stimulating economic growth, and their extension is absolutely essential to meet the onerous challenges we’ll be facing, including the ongoing war on terror and rising fuel prices.
Does this claim hold any water? If we look at the labor market the answer is, in my view, no. The problem is that when we look at the employment data we see nothing from the tax cuts. Here is a graph of the data from the Bureau of Labor Satistics (click it to get the larger picture).
That is a graph of employment since 1996. The tax cuts don’t appear to have done much to stimulate growth in employment. In looking at the graph we see that employment declined at the start of 2001 (about the time the recession started) and stopped declining right around the start of 2002. However, what do we see in terms of the slope of the growth in employment before the recession and after? They look pretty much the same. That is, it appears that the tax cuts have added nothing to job growth. In fact, doing a simple regression on 1996 to 1999 get a slope of 186.08, but from 2002 onwards the slope is 150.94. In other words, employment growth has been slower after the end of the recession even with the tax cuts.
What about economic growth? That isn’t that great either, IMO. Here are the percentage changes in GDP from 1996 to 2005,
- 1996: 3.7
- 1997: 4.5
- 1998: 4.2
- 1999: 4.5
- 2000: 3.7
- 2001: 0.8
- 2002: 1.6
- 2003: 2.7
- 2004: 4.2
- 2005: 3.5
Things don’t start to look good again till 2004 (if you look at the quarterly date we could extend this back to the second quarter of 2003).
If this is what the tax cuts produced then this economy is in some serious, serious trouble. In reality, my guess is that the tax cuts had little impact on the economy.
The basic idea is that the President has little to no control over the economy. In fact, I bet we could find conservatives who made this point when the economy wasn’t doing so great back in 2001 and 2002. But now, well it is a different story. Our economy would suck if weren’t for those tax cuts. So lets extend them.
The problem is that the Republicans have absolutely no stomach for cutting spending to keep the budget from ballooning up. Deficits today translate into higher taxes in the future. Add in the fiscally reckless policies of Bush when it comes to the Medicare Prescription Drug Program and we are looking at some pretty substantial tax increases in the not too distant future. And what does Limbaugh say we should do? Extend the tax cuts because that is what is driving this expansion.
Limbaugh writes,
First, they say that our deficits have skyrocketed under President Bush (which is true) because of his tax cuts (which is patently false).
I don’t know what to call this other than a lie. Granted the recession wasn’t kind to tax reciepts and we would have likely had a deficit without the tax cut, but the tax cuts also weren’t good for tax revenues either.
Limbaugh then goes on to give us a stellar example of bad math,
As Mark W. Smith points out in the newly released paperback version of his “Vast Right-Wing Conspiracy Handbook,” “President Bush’s tax cuts produced a 14.6 percent increase in federal revenues in 2005 over those in 2004.”
I’m sorry, but look at the data. 2004 and 2005 is when the economic growth kicked in and employment got back to its pre-recession levels. Gee…could that have had anything to do with the increase in tax revenues? This is supply-side reasoning at its worst. Taxes went down and tax revenues went up, therefore the increase in tax revenues were due solely to the decline in tax rates?
As much as it pains me to say this, extending the Bush tax cuts is a bad idea. At least unless there is some serious spending cutbacks in the near future. Since Bush has shown to be not simply completely disingenuous about his pledges to restrain spending, but to be a profligate spender extending the tax cuts would do little other than ensure that down the road there will be even larger cuts to come. Bush has done more than any Democrat in the Congress or the Senate to, in Limbaugh’s words, empower government.
