Lefty David Leonhardt has a piece in the New York Times that, surprisingly supports the idea that tax cuts can be used to restart the economy. While he gets some of it right, like where these tax cuts can be directed, he deliberately understates the effects of both the Reagan and Bush tax cuts, and distorts the history of both. Plus, he acts as a cheerleader for other Democratic initiatives that have turned out to be laughable.
Leonhardt has to restate the Democratic talking point about the across-the-board 2001 tax rate cuts:
For one thing, a permanent reduction in tax rates focused on the affluent — along the lines of those 2001 Bush tax cuts — does little to lift growth in the short term. An across-the-board, one-time cut — like the one that Mr. Bush signed in 2008 or that Mr. Obama signed last year — does more.
I don’t think so. People put the rebates that Bush enacted and the tax cuts from Porkulus into savings or paying down their own debt, neither of which has lifted growth in either the short- or long-term. Leonhardt doesn’t mention this; instead, he reinforces his lie on what happened in 2001:
Mr. Bush signed his original tax cut in June 2001, when the economy had been losing jobs for four months. It then shed jobs for two more years. In the decade that followed the tax cut, economic growth was slower than in any decade since World War II.
Notice anything missing? 9/11, perhaps? Not a problem for Leonhardt; 9/11 didn’t happen, nor did the effects. Something else missing; the 2003 tax rate cuts. More than anything else, those cuts are what helped fuel the recovery which led to one of the best years of employment in decades.
To top that off, Leonhardt has to lie about Ronald Reagan’s cuts:
If the goal is short-term stimulus, even Ronald Reagan’s much-lauded 1981 tax cut doesn’t appear to have worked. After he signed it, the economy lost jobs for 16 straight months. It didn’t start gaining jobs until after he had raised taxes, to reduce the deficit, in late 1982.
Two things are wrong with this. One, those tax increases in 1982 didn’t cause businesses to start hiring, as Leonhardt implies. Two, those tax cuts didn’t hit the top income bracket, the people who actually do the hiring, until 1983 (see page 39 of the PDF). By design. Reagan’s plan was a long-term plan; he also had a Democratic House to deal with and they wouldn’t have accepted anything other than what was passed. But as with 9/11, these events didn’t happen; plus, he tells a whopper about the 1981 tax package.
The key passage in Leonhardt’s piece is this:
That is why the ideal solution tries to leverage government dollars with private dollars.
This is classic Obamanomics. It also doesn’t work. He cites the “success” of Cash-for-Clunkers which not only caused a temporary spike in spending at the expense of growth, it has since come out that the price for used cars has gone up due to the program’s destruction of cars that were traded in. Leonhardt wants government spending for alternative energy, ignoring the effects this had on other countries like Spain.
Leonhardt does get one thing right:
A simpler approach — but a less targeted one — would temporarily cut the payroll tax, which finances Social Security and Medicare and is paid by both businesses and workers. By suspending the part that applies to businesses for a few months, Washington could lower the cost of keeping or hiring workers.
He also goes on to say that tax rates should stay the same for those who make less than $250,000 per year. But all this will be offset by the tax increases that are coming: letting the income tax rate increase for those who make more than $250,000, along with the new taxes put into Obamacare. In addition, the new financial regulations cause costs for consumers using banks to increase, just as the credit card law passed this session caused the costs of credit card usage increased. If Leonhardt thinks the economy can recover just by temporarily cutting the payroll tax and leaving the income tax rates for some people to remain the same, he’s nothing more than a dope-smoking red-diaper-doper-baby.
The government can do little to help this situation; it really is up to business to start hiring. But the government can and should do some things. Obamacare, the new financial regulations, and whatever is remaining in Porkulus should be repealed. All the tax rates should remain as they are. New health care legislation should be passed to give people more control instead of letting it stay with the health insurance providers and the government. New financial regulations should be passed that allows banks and other such institutions take risks but without the possibility of a government bailout. Fannie Mae and Freddie Mac need to be quickly killed and government’s involvement in housing should be heavily reduced. The rest of the non-defense spending by the federal government should also be heavily reduced. Defense-related spending should be improved, which allows for it to be reduced, but only to get rid of unnecessary defense spending and leave the U.S. able to defend itself fairly easily as it can now. And finally, the government should do what the Constitution says it should do: apply laws equally.
David Leonhardt is supposed to be an economics reporter. He’s not Krugman, but he is very much a Democratic shill. Even though his piece draws some one or two good conclusions, it shows.