Stimulus and Tax Cuts

December 4, 2009

Bruce Bartlett was a domestic policy adviser to Ronald Reagan and worked in H.W. Bush’s Treasury Dept. Now he writes for Forbes. But he was sounding the alarm about George W. Bush’s economic policies while W. was still in office, which of course makes him a left-wing communist in today’s parlance.

In his latest column, Bartlett evaluates the Obama stimulus and estimates its effect. He concludes (not atypically) that the stimulus worked, but the more interesting part is that the parts of the stimulus that worked best were outlays for goods and services (such as infrastructure investment), which produced the largest gains in GDP as a function of dollars spent from the government’s coffers. What worked the least? You guessed it: tax cuts. In particular, tax cuts aimed at the wealthy and at corporations (i.e., the Republicans’ solution to every economic problem), which overall produced less in terms of GDP than it cost in outlays.

He also calls the administrations estimate of roughly 650,000 jobs created by the stimulus “not unreasonable.”

2008’s Republican-sponsored tax rebate, by the way, did not have “any meaningful stimulative effect.”

The Republicans will continue to push tax cuts as a means to promote growth, even though there is no empirical evidence that this is true. There is no evidence, furthermore, that the not insignificant tax cuts under Bush had any positive effect on growth. Nonetheless, Republicans will push to make these cuts permanent. Apparently we are supposed to take it as an article of faith that tax cuts boost growth, even as taxes are now at historical lows in the United States (and are lower than almost any other developed country – and yes, this includes the corporate tax as well when one considers corporate loopholes). True, Japan has lower taxes than the United States, but I don’t think anyone wants to point to Japan to make the argument that lower taxes produce economic growth.

The Republicans should be held to account by our ineffective press corps and pushed to explain the economic theory they are relying on when they argue that tax cuts promote growth. ‘Reagan said so’ is not an acceptable answer (and taxes, by the way, were significantly higher when Reagan was president than they are now under Marxist-Leninist Obama).

h/t: Sully

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