The Big Lie - Tax Cuts Create Jobs. A Decade of Economic Disaster
This month marks the 10th anniversary of the first of the two tax cuts sought by President George W. Bush. The Economic Growth and Tax Relief Reconciliation Act was enacted in 2001 to be followed, in 2003, by the Jobs and Growth Tax Relief Reconciliation Act.
Ten years later, it is time we assess the actual results of these tax cuts, looking at economic performance rather than political promises. The results have been a disaster for the U.S. economy and for almost all of the American people. We have had very slow income and employment growth for the vast majority of families, an extremely unequal distribution of the direct financial benefits from these measures and very slow growth in the economy as a whole.
As a high-income person who has received these tax cuts during the past 10 years, I feel that it is my responsibility to speak out.
Supporters of tax cuts for high-income households, such as House Speaker John Boehner (R.-Ohio), argue that rich people are the “job creators” and that tax cuts encourage them to create jobs and that these new jobs, in turn, increase employment opportunities and improve the wages of the rest of the population.
Did any of these benefits occur after the Bush tax cuts? The quick and accurate answer is, no, they did not. Adjusted for inflation, the median weekly earnings of working Americans actually fell 2.3 percent from the end of the 2000-01 recession to the onset of the Great Recession. This is unique in the post World War II period.
Further, the recovery from the 2000-01 recession was the slowest of any post World War II recession to date, requiring 39 months before the number of employed Americans reached the pre-recession level. Where is even a scintilla of evidence that tax cuts such as those passed in 2001 and 2003 generate income and employment growth for the vast majority of the population?
A significant part of the failure of the Bush tax cuts to generate jobs and income growth flows from the top-heavy distribution of the benefits conveyed by these measures. The vast bulk of the reduced taxes were reaped by a very small number of families. In 2011, the average tax reduction to families receiving an income of $1 million or more (about 321,000 families) will be $139,199.
For this less than 0.5 percent of all families this is a total reduction in taxes of $860 million/week. Compare these tax benefits with the yearly savings proposed by cutting the Women, Infants and Children (WIC) health and nutrition program: $833 million. An obvious question is, why can’t this very small group of very high-income families give up just one week of their tax cut to provide nutrition for the tens of thousands of women and children that benefit from the WIC program?
More significantly, in light of the deficit hysteria gripping Washington, D.C., the combined impact of the 2001 and 2003 Bush tax cuts has been the addition of more than $2.6 trillion to the federal debt. This included more than $400 billion in interest payments on the debt necessary to pay for the cuts.
Of course, one might forgive these policy failures if the promise of economic growth had been fulfilled. On this measure, however, the record is even worse.
The 2000-01 recession ended in the fourth quarter of 2001, just in time for the first Bush tax cut to take effect. From the end of the recession until the onset of the Great Recession, the economy grew at a slower rate than in any other post recession period since World War II. Thus, despite promises from the advocates of the tax cuts, the reality was slower growth rather than faster growth. The additional tax cut in 2003 did nothing to increase the pace of economic growth.
In sum, the Bush tax cuts were a bad idea at the time and are an even worse idea today. Ending these cuts for incomes over $250,000 would generate over $100 billion a year in additional revenue. If we also created additional tax rates for very high-income families (e.g., at $500,000, $1 million, $5 million and $10 million) we could increase federal revenue by more than double that amount and put ourselves on the road to reducing deficits and debts.
William Barclay worked for 22 years in financial services before retiring from that sector, and the Chicago Stock Exchange, in 2004. He is now an adjunct professor at the University of Illinois at Chicago’s Liautaud Graduate School of Business and is a member of Wealth for the Common Good.