Were the Bush Tax Cuts Good for Growth?

[Toro]

I believe the author of this article makes a common mistake most people make. He assumes that the outcome is evidence of the hypothesis when in fact the conclusion must include what would have occurred had the tax cuts not taken place. Econometrics attempts to isolate variables to answer this question. The author may be correct, I don't know, though I suspect that growth would have been lower had the Bush tax cuts not been implemented.

However, he does lay out the data.

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:

...

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?

Were the Bush Tax Cuts Good for Growth? - NYTimes.com

 

[ajwar]

The data does not lie. The tax cuts were a costly, shallowy thought-out solution for the economic problems that existed immediately following 9/11. I really wish people would stop being afraid of taxes. Revenue from taxes go to funding higher education, building roads and protecting our borders (amongst other benefits). Because of this extension, the average working taxpayer will get to keep a whopping $50 (rough estimate) in their paycheck. Is this really worth the price tag associated with this extension for the betterment of the health of our national economy?

 

[uscitizen]

Lets not forget the nearly 5 trillion in excess spending / debt that Bush did.
It had to cause some economic growth.

 

[Revere]

Hmm. Kennedy's tax cuts created growth. So did Reagan's. So did Clinton's Republican budgets.

I'd say Bush's record is pretty good for wartime.

 

[Truthmatters]

Bullshit.

Remember your meme that WWII saved the US economy and not the new deal?

You cant even keep the republican lies straight

 

[uscitizen]

The new deal helped us to win WW2.
The electricity from new deal hydro projects was used to refine aluminum and uranium.
And many more aspects as well. Roads to transport war materials on, etc.

 

[loosecannon]

Hmm. Kennedy's tax cuts created growth. So did Reagan's. So did Clinton's Republican budgets.

I'd say Bush's record is pretty good for wartime.

that's all bullshit. You assume the idiotic, which is that tax rates were the sole causative driver of the economy.

 

[loosecannon]

Bullshit.

Remember your meme that WWII saved the US economy and not the new deal?

WWII did end the G Depression. Or rather the full employment of total war.

 

[uscitizen]

Bullshit.

Remember your meme that WWII saved the US economy and not the new deal?

WWII did end the G Depression. Or rather the full employment of total war.

actually more than full employment. Women entered the labor force in significant numbers for the first time.

 

[Truthmatters]

Then how could the revere idea that war hurts the economy be right?

 

[Truthmatters]

The new deal helped us to win WW2.
The electricity from new deal hydro projects was used to refine aluminum and uranium.
And many more aspects as well. Roads to transport war materials on, etc.

Good point, infrastructure is alwasy a good idea

 

[uscitizen]

Then how could the revere idea that war hurts the economy be right?

Well the worst thing about Iraq and Afgansitan economic wise was a tax cut instead of a tax increase to fund the wars. That coupled with our already far to high debt level.

 

[boedicca]

The NYT article is a load of simplistic propaganda. Economic performance is affected by more than tax rates. Spending, Monetary Policy, and the Rule of Law are equally important.

Unfavorable trends:

 

[loosecannon]

Then how could the revere idea that war hurts the economy be right?

It is almost impossible for Revere to be right, but it does happen!

War is both good and bad for the economy. In the early phases it is usually pretty helpful, but the long term costs are counterproductive. It's hard to see this when you layer the long and short term impacts of war upon previous and previous wars.

But the same is true for deficit spending which is where war gains it's benefits. Spending tomorrow's money today always has an upfront benefit, followed by a long hangover.

 

[uscitizen]

So we now have around 4-5 million more govt employees than we do in goods producing industries?
Lets outsource some more folks.

 

[boedicca]

How about we shrink government so that it doesn't exceed expected tax receipts by 25% instead.

 

[uscitizen]

And lets not forget that several of those goods producing industtires products are purchased by the govt.

 

[william the wie]

Toro, econometric analysis relies on several things a certain poster you know has objected to in other contexts:

The EMH or no money left on the table as in no one has ever seen coins or bills on the street.

Gaussian distribution, no one ever makes money from Black Swans or fat tails.

 

[Toro]

Toro, econometric analysis relies on several things a certain poster you know has objected to in other contexts:

The EMH or no money left on the table as in no one has ever seen coins or bills on the street.

Gaussian distribution, no one ever makes money from Black Swans or fat tails.

Econometrics does a decent job of explaining what has happened ex-post. Forecasting is okay as long as the system is stable. It doesn't tell you what can happen when a system isn't stable. That is a problem with general equilibrium economics.

 

[william the wie]

Toro, econometric analysis relies on several things a certain poster you know has objected to in other contexts:

The EMH or no money left on the table as in no one has ever seen coins or bills on the street.

Gaussian distribution, no one ever makes money from Black Swans or fat tails.

Econometrics does a decent job of explaining what has happened ex-post. Forecasting is okay as long as the system is stable. It doesn't tell you what can happen when a system isn't stable. That is a problem with general equilibrium economics.

Since neither of us believe in general equilibrium, you've said as much in other posts, let's move beyond that. The welfare state is based on envy and sloth and possibly public health concerns: dead bodies are a health hazard. Since diseases do not stop at borders or community gates and poor living conditions breed disease some sort of safety net is needed. What is not needed is some social "justice" tax code but neither of the majors is willing to confront that issue.