Conservative media advance dubious claim that Bush tax cuts drove economic recovery
Conservative media have pushed the dubious claim that the Bush tax cuts were responsible for economic recovery. In fact, economists have stated that the Bush administration's tax policies failed to make the economy grow faster and contributed to a decline in median household income.
IBD: Bush tax cuts "were responsible for the economy's recovery from the triple whammy of the 1999-2000 stock market meltdown, the Y2K debacle and the 2001 recession." In an August 6 editorial titled "The Propaganda of Incompetents," Investor's Business Daily claimed that the Bush tax cuts "were responsible for the economy's recovery from the triple whammy of the 1999-2000 stock market meltdown, the Y2K debacle and the 2001 recession."
...Economists say Bush tax cuts failed to produce substantial economic growth
Nobel laureate Krugman: "But the real source of the expansion was the housing boom, which had very little to do with the tax cut." In a January 14, 2008, blog post, economist and Nobel Prize winner Paul Krugman wrote that "the real source of the expansion" after the 2001 recession "was the housing boom, which had very little to do with the tax cut":
There were two main Bush tax cuts -- EGTRRA, enacted in mid-2001, and JGTRRA, enacted in 2003.
[...]
EGTRRA arrived in the middle of a recession, but that was an accident. It was devised in 1999, when the economy was booming, to defend Bush's right flank against Steve Forbes. During the 2000 campaign, Bush sold it as a way of returning budget surpluses to the people, with not a hint that it had something to do with fighting recession. The recession story was an after-the-fact reinvention.
And EGTRRA didn't seem to help all that much. Formally, the recession ended in late 2001, but most labor-market indicators continued to worsen into mid-2003.
JGTRRA, which mainly cut tax rates on capital gains and dividends, was followed by a real recovery. And the Bushies naturally claimed the credit. But the real source of the expansion was the housing boom, which had very little to do with the tax cut.
Krugman: "But even now real G.D.P. is considerably lower than most people thought it would be back when President Bush was selling his tax cuts." Krugman wrote on October 18, 2005, that "[w]e had a recession followed by slow growth in the early Bush years, then faster growth after that as the economy recovered. But even now real G.D.P. is considerably lower than most people thought it would be back when President Bush was selling his tax cuts." He added: "At the end of the 1990's, people thought that the economy would grow at rates similar to those of the previous few years -- probably at more than 3 percent a year. In fact, economic growth since 2000 has averaged only about 2.5 percent, which is below expectations."
CAP paper finds that "supply-side policies failed to deliver what supply-side theory predicted" regarding wage growth. As Center for American Progress' (CAP) Matthew Yglesias has noted in response to Erickson, in a September 2008 CAP paper analyzing the impact of supply-side policy, Michael Ettlinger, Vice President for Economic Policy at American Progress, and Economic Policy Institute's John Irons wrote:
Even during the period of expansion wages were often in decline in the first supply-side period. In the second period, wages were also in decline for portions of the period, and never strong. In the post-1993 period, wages were in decline at the start but wage growth grew substantially over the period. With such dismal wage growth during supply-side periods, supply-side policies failed to deliver what supply-side theory predicted.
Tax Cuts: Myths and Realities of the Bush Years
Myth 3: The economy has grown strongly over the past several years because of the tax cuts.
“The main reason for our growing economy is that we cut taxes and left more money in the hands of families and workers and small business owners.” — President Bush, November 4, 2006
Reality: The 2001-2007 economic expansion was sub-par overall, and job and wage growth were anemic.
Members of the Administration routinely tout statistics regarding recent economic growth, then credit the President’s tax cuts with what they portray as a stellar economic performance. But as a general rule, it is difficult or impossible to infer the effect of a given tax cut from looking at a few years of economic data, simply because so many factors other than tax policy influence the economy. What the data do show clearly is that, despite major tax cuts in 2001, 2002, 2003, 2004, and 2006, the economy’s performance between 2001 and 2007 was from stellar.
Growth rates of GDP, investment, and other key economic indicators during the 2001-2007 expansion were below the average for other post-World War II economic expansions (see Figure 2). Growth in wages and salaries and non-residential investment was particularly slow relative to previous expansions, and, while the Administration boasts of its record on jobs, employment growth was weaker in the 2001-2007 period than in any previous post-World War II expansion. (http://www.cbpp.org/8-9-05bud.htm)
Median income among working-age households, meanwhile, fell during the expansion. Census data show that among households headed by someone under age 65, median income in 2006, adjusted for inflation, was $1,300 below its level during the 2001 recession. Similarly, the poverty rate and the share of Americans lacking health insurance were higher in 2006 than during the recession. (http://www.cbpp.org/8-28-07pov.htm)
