Political Nutz

Observations on the pathetic state of American politics

The Reality of Tax Cuts and Economic Growth

The Republicans continue to push for extension of the Bush tax cuts for the wealthy insisting those dollars will drive economic growth.  But history doesn’t support that argument.  Granted the economy is a complex beast and there is rarely a simple cause-effect relationship between one action and a specific outcome.

That said, the Bush cuts of 2001 were passed with the promise of economic stimulus. The Cato Institute testified before a House subcommittee in 2003 that the cuts would “increase economic growth, boost the stock market, and increase business investment”; the same arguments we’re hearing now. However, the period 2001-07 yielded the slowest growth in GDP in the post WWII era, worse even than the dreary 1970s. The rate of new business start-ups also declined as did the number of workers in the labor force.  Thus three key indicators of economic growth decreased in the post Bush tax cut years.  There is no reason to believe Trickle Down economics will be any more effective than it was during the Reagan years.

See: Were the Bush tax cuts good for growth?, Before the Bush Recession

As for back as 2003, economists were warning about the impact of the cuts on the economy and deficits: Bush’s Tax Cut Plan Slashes Growth, Trickle-Down Economics: Four Reasons Why It Just Doesn’t Work

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