Friday, August 24, 2007

How are those tax cuts working out for you?

From the EPI:
One of the most frequently heard phrases in certain Washington policy circles is "the tax cuts are working." [...]

The logic behind this claim falls under the rubric of "supply-side economics." The basic idea is that taxes constrain investment and employment growth. So if taxes are cut, by this logic one expects investment and employment would grow more quickly. This mobilization of investment and labor in turn would generate faster overall growth. Extreme forms of supply-side arguments assert that the extra growth results in a surge of government revenue large enough to allow the tax cuts to "pay for themselves."
What does the evidence show from tax cuts in the 2000's (in red) and tax increases in the 1990's (in blue) over the first six years of those recoveries? Check out the figure below.

Contrary to supply-side arguments, both investment and employment grew considerably faster in the 1990s, when tax increases raised revenue, compared to the 2000s, when the tax cuts lowered revenue. Investment grew 35% more quickly in the 1990s, and employment grew 6% faster.
What was it President Bush said at the beginning of the month?
And hardworking Americans have used this tax relief to produce strong and lasting economic growth.
The problem is that nearly all of the growth in incomes was among those in the upper reaches of the income ladder and the majority of investment tax breaks went to those making more than $1 million.

4 comments:

Praguetwin said...

I like to point out also that even Alan Greespan made clear that there is no way to make a causal link between those tax cuts and the recovery that followed. What was probably more important was the lower interest rates which make it easier to borrow.

Larry said...

In the neocon corporate world, the only ones they are aware of in existence are the ultra wealthy.

The rest of us are only flies that soak up air and get in their way.

Thus the tax cuts work very well for their world!

LaPopessa said...

They've worked really nicely for me. I was able to buy that 2nd mansion with almost no money down thanks to paying for it with my super large CEO bonus for running my business into the ground. And the golden parachute helped me get a nice gold and diamond encrusted yacht so I can visit my island without having to bother with customs!

Kathy said...

PT, unfortunately, those lower interest rates also contributed to the housing debacle we find ourselves in.

Larry, I think you're right, yet they're the same ones who cry foul when people try to point out we're becoming a two-class country.

Lapopessa, care to share the wealth with the rest of us poor people! :-)