Bush's Policies Don't Promote Growth
The economic evidence is clear: the president's tax changes have not worked
to improve the health of the economy.
John Irons and Lee Price
February 17 , 2006
Article created by the The Center for American Progress.
The economic evidence is clear: the president's tax changes have not worked
to improve the health of the economy. Business investment, employment, and
wages have all underperformed past recoveries. Furthermore, the choices made
in the president's budget put at risk the future health of the nation by
running massive deficits and by cutting back on important national
investments in education, science, and energy.
Tax Policy
Bush's tax policy has created a ballooning federal budget deficit that
threatens our future prosperity.
Between early 2001 and September 2005, tax changes reduced revenue by $870
billion. The tax cuts that favor the most prosperous cannot be defended on
grounds of fairness. But the president has tried to justify them as
promoting a stronger, more prosperous economy for everyone. In fact,
however, the tax changes since 2001 have failed to spur business investment,
jobs, wages, or overall growth.
The rhetoric for the tax cuts was appealing: by taxing income less,
businesses would be encouraged to make new investments and people would work
harder, knowing that they would keep more of what they earn. It has not
worked out that way. Business investment has failed to recover at a normal
rate and labor force participation has fallen. Rather than people coming
into the workforce at higher rates, the opposite has happened. If the
workforce had grown with the population since 2001, there would be 3 million
more people between the ages of 20 and 65 in the workforce.
Business Investment
According to proponents of the tax cuts, cutting corporate income taxes and
personal income tax rates was supposed to "improve the investment incentives
of America's businesses." Small business owners, especially, were supposed
to respond to lower individual tax rates by investing more and hiring new
workers. In addition, more than $200 billion of cuts were specifically tied
to business investment, reducing the cost as a way to encourage purchases of
equipment, software, structures and machinery.
The cuts were an utter failure. Business investment has always recovered
after a recession, but this was the most sluggish recovery in memory. As a
result, business investment has grown 65% more slowly since the peak of the
business cycle five years ago than the average for similar periods after
nine cycle peaks in the last 60 years. (A business cycle includes a
recession and the expansion until the next recession. The peak of a business
cycle occurs just before a recession.)
In the recession and recovery of 1990-1994, instead of cutting taxes,
Presidents George H.W. Bush and Bill Clinton signed tax increases into law.
Yet businesses' investment grew much faster during that recovery than it has
during the last four years.
The Bush tax cuts have been a waste precisely because they were targeted at
business owners and the wealthiest Americans, rather than the average
consumer whose increased demand and consumption would have made it sensible
for businesses to invest.
Employment
Business investment didn't take off, and neither did job creation. Even now,
after five years of huge tax cuts, one million more people are officially
unemployed than when George Bush took office, and millions more have left
the labor force.
President Bush has noted that 2 million jobs were created over the course of
2005, and that we have added 4.6 million jobs since the decline in jobs
ended in May 2003. This is not evidence that the tax cuts are working.
When the third round of tax cuts passed in 2003, one of the Bush
administration's major selling points was the claim that the economy would
create 5.5 million jobs from July 2003 through the end of 2004 - almost one
and a half million more jobs than would be expected in a normal recovery.
Instead, only 2.4 million jobs were created, 1.7 million less than the
number we were told to expect with no tax cut.
Job growth remains abnormally slow. Last year's 2 million new jobs
represented a gain of only 1.5%. With normal growth, we would have created
4.6 million jobs last year.
Wages and Income
Not surprisingly, since job growth has been so poor, the tax cuts have also
failed to create substantial wage and salary growth. Most Americans depend
on their wages and salaries for their standard of living. In a healthy
economy, wages and salaries should rise along with rising national income
and productivity. A record long period of job decline followed by sluggish
job growth has created slack in the labor market and pulled down wage growth
below inflation growth in the last two years. Last year, middle income wages
grew less than inflation (2.4% vs. 3.4%), reducing their buying power.
The Overall Economy
The tax cuts failed to produce the burst of economic activity the president
promised. Instead of doing better than in past business cycles, the economy
has grown sluggishly, at a rate far slower than in previous cycles The most
common measure of economic activity, the Gross Domestic Product (GDP), grew
only 13.5% since the first round of tax cuts were passed in early 2001,
averaging 2.7% per year. The average for similar periods in the past was far
better - growing 16.3% or 3.2% per year.
John Irons is Director of Tax and Budget Policy at the Center for American
Progress, and Lee Price is Research Director at the Economic Policy
Institute.
http://tinyurl.com/8wjbp
http://www.motherjones.com/cgi-bin/print_article.pl?url=http://www.motherjones.com/commentary/columns/2006/03/tax_policy.html
--
The number of Americans living in poverty increased by 1.3 million
last year (2003), while the ranks of the uninsured swelled by 1.4 million,
the Census Bureau reported Thursday (August 27, 2004).
http://www.cnn.com/2004/US/08/26/census.poverty.ap/
--
The fair use of a copyrighted work:
In accordance with Title 17 U.S.C. Section 107, this material is
distributed without profit to those who have expressed a prior interest in
receiving the included information for research and educational purposes.
For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
.
|
