Tax cut mania | Bleader

Tuesday, July 17, 2007

Tax cut mania

Posted By on 07.17.07 at 07:07 AM

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Did Bush's tax cuts on dividends and capital gains help the economic recovery? Four years later, the Republicans say they did, and the Center on Budget and Policy Priorities argues rather persuasively that they didn't:

"The 1990s recovery provides a useful comparison.  Like the current recovery, the 1990s recovery was initially relatively weak, with investment growth in particular resuming only about eighteen months into the recovery.  But in the 1990s, investment growth recommenced without any tax cuts — and then strengthened modestly following a tax increase.  Moreover, overall investment growth during the 1990s business cycle, with its large tax increases in 1990 and 1993, was substantially stronger than during the current business cycle, with its large tax cuts in 2001 and 2003.  If major economic developments were generally attributable to tax policy, then the 1990s experience could lead one to conclude that tax increases provide more potent economic stimulus than tax cuts.  The more appropriate lesson to draw, however, is probably that weak recoveries tend to return to historical norms, whether taxes are cut, increased, or left unchanged."

I am inordinately fond of pundits who don't try to push the envelope. On the other side, Dominic Rupprecht, who blogs at Government Bytes for the far-right National Taxpayers Union (with which I sometimes agree), does his best to uphold the Bush side, sniping around the edges. I'm biased, but I note that he didn't deal with CBPP's quoting UC Nobel laureate Gary Becker, who supported the dividend tax cut but offered no comfort to Republican hacks: "Any short-run stimulus from eliminating the dividend tax would be too weak to have a significant benefit to the economy."

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