Were The Bush Tax Cuts Good For Growth? Not So Much

[thoughtone]

source: New York Times

Were the Bush Tax Cuts Good for Growth?

<!-- The Content -->Liz Peek at FoxNews.com congratulates me for writing about the importance of economic growth. So in the spirit of maximizing growth, I want to pose a question: Why should we believe that extending the Bush tax cuts will provide a big lift to growth?

Those tax cuts passed in 2001 amid big promises about what they would do for the economy. What followed? The decade with the slowest average annual growth since World War II. Amazingly, that statement is true even if you forget about the Great Recession and simply look at 2001-7.

The competition for slowest growth is not even close, either. Growth from 2001 to 2007 averaged 2.39 percent a year (and growth from 2001 through the third quarter of 2010 averaged 1.66 percent). The decade with the second-worst showing for growth was 1971 to 1980 — the dreaded 1970s — but it still had 3.21 percent average growth.

The picture does not change if you instead look at five-year periods. Here’s a chart ranking five-year periods over the past 50 years, in descending order of average annual growth:

Bureau of Economic Analysis, via Haver Analytics


I mean this as a serious question, not a rhetorical one: Given this history, why should we believe that the Bush tax cuts were pro-growth?

Is there good evidence the tax cuts persuaded more people to join the work force (because they would be able to keep more of their income)? Not really. The labor-force participation rate fell in the years after 2001 and has never again approached its record in the year 2000.

Is there evidence that the tax cuts led to a lot of entrepreneurship and innovation? Again, no. The rate at which start-up businesses created jobs fell during the past decade.

The theory for why tax cuts should create growth and jobs is a strong one. When people are allowed to keep more of each dollar they earn, they are likely to work longer and harder. The uncertainty is the magnitude of this effect. With everything else that’s happening in a $15 trillion economy, how large of an effect on growth do tax cuts have?

Every available piece of evidence seems to suggest that the Bush tax cuts did little to lift growth. I have yet to hear a good argument to the contrary, but I’d be fascinated to see another blogger or an economist take a crack at it.

Update: A reader asks for statistics on real economic growth (that is, adjusted for inflation). The above chart is already adjusted for inflation.

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[Gunner]

source: New York Times

Were the Bush Tax Cuts Good for Growth?

<!-- The Content -->Liz Peek at FoxNews.com congratulates me for writing about the importance of economic growth. So in the spirit of maximizing growth, I want to pose a question: Why should we believe that extending the Bush tax cuts will provide a big lift to growth?

Those tax cuts passed in 2001 amid big promises about what they would do for the economy. What followed? The decade with the slowest average annual growth since World War II. Amazingly, that statement is true even if you forget about the Great Recession and simply look at 2001-7.

The competition for slowest growth is not even close, either. Growth from 2001 to 2007 averaged 2.39 percent a year (and growth from 2001 through the third quarter of 2010 averaged 1.66 percent). The decade with the second-worst showing for growth was 1971 to 1980 — the dreaded 1970s — but it still had 3.21 percent average growth.

The picture does not change if you instead look at five-year periods. Here’s a chart ranking five-year periods over the past 50 years, in descending order of average annual growth:

Bureau of Economic Analysis, via Haver Analytics


I mean this as a serious question, not a rhetorical one: Given this history, why should we believe that the Bush tax cuts were pro-growth?

Is there good evidence the tax cuts persuaded more people to join the work force (because they would be able to keep more of their income)? Not really. The labor-force participation rate fell in the years after 2001 and has never again approached its record in the year 2000.

Is there evidence that the tax cuts led to a lot of entrepreneurship and innovation? Again, no. The rate at which start-up businesses created jobs fell during the past decade.

The theory for why tax cuts should create growth and jobs is a strong one. When people are allowed to keep more of each dollar they earn, they are likely to work longer and harder. The uncertainty is the magnitude of this effect. With everything else that’s happening in a $15 trillion economy, how large of an effect on growth do tax cuts have?

Every available piece of evidence seems to suggest that the Bush tax cuts did little to lift growth. I have yet to hear a good argument to the contrary, but I’d be fascinated to see another blogger or an economist take a crack at it.

Update: A reader asks for statistics on real economic growth (that is, adjusted for inflation). The above chart is already adjusted for inflation.

<!-- end .entry-content -->

NICE TRY!!!





Mathew Yglesias Is A Dishonest Far Left Crank Who Is Incapable of Understanding Economics
Posted by Jim Hoft on Thursday, November 18, 2010, 8:49 PM
Matthew Yglesias – Dishonest Far Left Crank

Matthew, if you don’t understand economics, please don’t report on economics.
Today this far left hack reported on the Bush tax cuts and their effects on the economy. He used this chart as evidence for his argument that the Bush tax cuts were not effective.

Do you notice anything strange about this chart? The chart breaks down economic growth into 5 year segments. Notice that the chart breaks up the Bush years from 2001 to 2005- during the Clinton recession and 9-11 – and 2006 to 2010- including the mortgage meltdown of 2008 and Obama’s failed first two years in office. Of course, breaking up the Bush years in this way is a clever way for big government statists to misrepresent the tax cut effects on the US economy.

THE TRUTH – BUSH TAX CUTS GREW THE ECONOMY.

During the Bush years, despite the 2000 Recession, the attacks on 9-11, the stock market scandals, Hurricane Katrina, and wars in Iraq and Afghanistan, the Bush Administration was able to reduce the budget deficit from 412 billion dollars in 2004 to 162 billion dollars in 2007, a sixty percent drop. In 2004 the federal budget deficit was 412 billion dollars. In 2005 it dropped to 318 billion dollars. In 2006 the deficit dipped to 248 billion dollars. And, in 2007 it fell below 200 billion to 162 billion dollars. During the Bush years the average unemployment rate was 5.2 percent, the economy saw the strongest productivity growth in four decades and there was robust GDP growth.

Not only were more jobs lost after the 9-11 attacks in 2001 than in the 2008 market crash, but more jobs were created by President Bush’s pro-business policies and tax cuts than by the Obama-Pelosi “spend your way to hell” Keynesian failure.

THE REALITY – OBAMA’S BIG GOVERNMENT TAX & SPEND POLICIES CRIPPLED THE ECONOMY

Obama’s trillion dollar stimulus package failed.
Barack Obama and Nancy Pelosi tripled the national deficit last year by nearly a trillion dollars – something unheard of in our nation’s history.

After an unheard of record deficit last year of $1.4 Trillion the economy is on track to experience a $1.3 Trillion deficit this year.

Now Matthew Yglesias and the far left want you to believe that the Bush tax cuts did not work.
It’s a lie.

 

[geist]

Interesting though that the Carter and Johnson years had some of the biggest growth.

 

[Gunner]

PRIVATE SECTOR JOBS FOOT THE BILL FOR "GUVMENT" JOBS NOT VICE VERSA!!!

 

[thoughtone]

gunner, gw tax cuts for 10 years. Where are the jobs???

 

[thoughtone]

Interesting though that the Carter and Johnson years had some of the biggest growth.

 

[Gunner]

gunner, gw tax cuts for 10 years. Where are the jobs???

Answered like a true liberal. I take it you missed the part about the unemployment rate under W as opposed to Obama. Can you post the current unemployment rate that the messiah said wouldn't go over 8% if congress voted for the stimulus?

 

[thoughtone]

Answered like a true liberal. I take it you missed the part about the unemployment rate under W as opposed to Obama. Can you post the current unemployment rate that the messiah said wouldn't go over 8% if congress voted for the stimulus?

We are still under the GW tax cuts until January 1, 2011. Where are the jobs the GW tax cuts created?

Answer!

Answer!

Answer!

 

[Upgrade Dave]

So going by Gunner's first chart, we're going in the right direction and should be back to level before the Bush tax cuts took effect. I am wondering how the rest of Bush's red line would look over the entire 10 yr run of the cuts. We see how it started and how it ended. There isn't any real relation between the the Bush tax cuts and the Recovery Plan since they're going simultaneously and the Recovery Act had it's own middle class/working class tax cut.
It should be remembered in this argument that the focus should be on the tax cuts for the top 2% not the overall tax package. No one is fighting against tax cuts for the middle and working classes.

That's interesting but what's it look like for 2009 because as it looks from this chart, it's going in the negative direction.

Now this gets a big fat "So what?". This chart doesn't include most Americans or small businesses.