Taking Credit Where Little is Due
In this post the other day I predicted that President Bush would claim credit for the decline in the budget deficit and argue it was due to his tax cuts. Well, here is a Washington Post article where Bush did exactly that. Fortunately the WaPo also debunks Bush’s claims.
Economists said Bush was claiming credit where little is due. The economy has grown and tax receipts have risen at historic rates over the past two years, but the Bush tax cuts played a small role in that process, they said, and cost the Treasury more in lost taxes than it gained from the resulting economic stimulus.
I know, I know, many of those on the Right who aren’t particularly enthralled with things like data and and economic thoery will argue to the contrary. However, this view fits in quite nicely with N. Gregory Mankiw’s research on this topic. Who is N. Gregory Mankiw? The former head of President Bush’s Council of Economic Advisors. Basically, the idea that the tax cuts can “pay for themselves” is just not true.
“Federal revenue is lower today than it would have been without the tax cuts. There’s really no dispute among economists about that,” said Alan D. Viard, a former Bush White House economist now at the nonpartisan American Enterprise Institute. “It’s logically possible” that a tax cut could spur sufficient economic growth to pay for itself, Viard said. “But there’s no evidence that these tax cuts would come anywhere close to that.”
And as much as it pains me to say this, Hastert is probably right,
House Speaker J. Dennis Hastert (R-Ill.) claimed credit for “driving down the deficit” and accused Democrats of plotting to roll back the tax cuts if they win a majority in the House, a move Hastert said “would destroy jobs and hurt the economy.” Bush, meanwhile, called on Congress to permanently extend the cuts, which are scheduled to expire by 2010, at an additional cost to the Treasury of $2.2 trillion by 2016, according to CBO estimates.
Right now the economy is softening, and thus it is not a good time for a tax cut. Contrary to some of the whacky beliefs of those on the Left who eschew data and economic theory, raising taxes when the economy is weak is not usually a good idea. Still, this doesn’t mean that making the tax cuts permanent is the right move either. Both Bush and the Republicans in Congress have shown complete disdain for reigning in spending as my initial post has showed. The fiscal outlook is already rather bleak when on considers Medicare spending growth and making the tax cuts permanent would simply make things worse without at least some cuts elsewhere in the budget. And even cuts elsewhere in the budget would not likely be large enough to offset the impact of making the tax cuts permanent. Not unless we want to look into cutting things like defense spending.
Lets also keep something else in mind as well: if growth falters then it is likely that tax receipts will also falter. In short, the current success Bush has had in “reducing the deficit” hinges on continued growth. Take away that growth and Bush will likely be faced with growing deficits once again. Bush’s fiscal policy is basically to go deeper into debt as income increases. This isn’t what most of people would consider good budgetary practices.