At yesterday’s White House press conference, a reporter asked the president for his thoughts in response to Americans’ concerns about the state of the economy. “Your administration is considering a plan to help people out with their mortgage payments,” the reporter said, “but I wonder if there’s anything else beyond that that you’ve got in mind?”
After a rambling answer that emphasized a trade deal with Peru, Bush concluded:
“And the main thing we’re going to do is make it clear that Congress is not going to raise taxes during a time when this slow — the economy could be slowing down.”
This reminded me of a good piece Jonathan Chait recently had in TNR.
The original reason we needed a tax cut was that a surplus meant taxpayers were overcharged. Then the overcharge disappeared, but we needed a tax cut on account of the recession. Currently, we need tax cuts because the fact that the recession ended means the old tax cuts are working. If the economy tanks, I assume we’ll just be told again we can’t raise taxes during a recession.
This Orwellian spectacle has grown so familiar that it has simply become an accepted fact of life in Washington. A New York Times article earlier this month called the economic expansion “one of the few positive developments President Bush and the Republican candidates have been able to cite.” But, the same article proceeded to explain, “the threat of a recession would make it harder to advocate allowing President Bush’s tax cuts to expire, as the lower rates are scheduled to do in 2010, and easier for Republicans to argue that Democratic proposals to raise taxes on the rich risk making the economy worse.” So, if the economy keeps growing, it helps the GOP. But, if it stops growing, it hurts the Democrats. Sadly, this is probably an accurate summation of the debate.
It is, indeed. Tax cuts, according to the White House, Bush’s congressional allies, and most of the political world, are the appropriate solution for a weak economy, a strong economy, a large deficit, and large surplus, and presumably the common cold.
But a small dose of reality makes clear that Bush’s talking points are wrong.
There’s no perfect way to test the effect of tax rates, but it’s pretty revealing to compare the current economic expansion, under which taxes were cut, with the previous economic expansion, which had a tax hike. Both the Clinton expansion and the Bush expansion featured enormous gains for the very rich. The difference is that the Clinton expansion also produced huge benefits across the income spectrum, while the Bush expansion has not.
The most common measure of how average people have fared is median household income, which captures gains by families right in the middle. From the peak of the previous business cycle, in 1989, to the peak of the Clinton-era business cycle, which ended in 1999, median household income rose by 8.5 percent. During the Bush-era business cycle, median family income has actually fallen, by 2.8 percent. This is extremely bad.
So, Clinton raised taxes; Bush lowered them. Clinton’s economy soared; Bush’s economy didn’t. Clinton’s deficits disappeared; Bush’s deficits blossomed.
Now, Republicans will argue, reasonably, that this is an overly-simplistic view of what transpired. The president’s tax policies, the right will no doubt insist, do not necessarily have a direct effect on the nation’s broader economic health. Fair enough.
But therein lies the point: Bush says any kind of tax increase now would take an economy that’s already slowing down and bring it to a full halt. Except, as Chait noted, that doesn’t make any sense, especially given the GOP’s rationalization of Clinton’s successes.
If economic growth is mostly driven by things other than fiscal policy, then we can return to the slightly higher upper-bracket tax rates of the Clinton era and have lower deficits, stronger government benefits for the non-rich, with little or no trade-off for economic growth.
So the conservative argument fundamentally depends upon denying the 1990s.
Conservative arguments fundamentally depend on denying a lot of things; this is just keeping with the trend.