A Little Modesty, Please
MOORE, STEPHEN
A Little Modesty, Please Bush's tax cut didn't cause the economic recovery. BY STEPHEN MOORE FEELING BUOYANT and mighty relieved by the stream of good news on the economy for the first quarter...
...It's a little soon to be celebrating a return to the Roaring Nineties...
...Sure, there were the $300-$600 tax rebate checks sent out to workers late last summer...
...Feldstein and the Bush economists are correct that the Bush tax cut will be a modest plus for the economy over the long term...
...But this could only have helped if the Keynesian model of consumer demand as the driving force behind the economy were correct...
...Just one example: After September 11, a capital gains tax cut as part of an economic stimulus plan was well within the administration's reach...
...But it's not a story about the puny tax cut...
...In fairness to Bush, this was about the best deal he could cut with the Democrats in Congress, who are as enthusiastic about tax cuts as my dog is about our electric fence...
...The Fed's belated interest rate cuts last year are finally beginning to revive business conditions...
...one inconvenient fact that made Daschle's anti-tax cut rant so preposterous—as several of us economic pundits quickly noted—was that there hasn't been a tax cut yet to speak of...
...In any case, the Keynesian part seems to be dominant...
...In sum, tax policy changes have had little to do with the nation's improved economic performance...
...That won't happen until the White House stops congratulating itself for the wrong things...
...But a tax rebate has almost zero impact on reducing barriers to growth or reducing capital costs...
...But phasing in tax rate reductions in the future delays economic activity, it doesn't accelerate it...
...unfortunately, these statements are only slightly more persuasive than when Tom Daschle blamed the Bush tax cut for the recession...
...The economy is hardly out of the woods, especially given the shakiness of the global economic situation...
...This reduction isn't inconsequential, but it certainly doesn't explain how the economy went from negative growth to perhaps as much as 4 percent growth so far this year...
...if rebate checks can elevate Stephen Moore is a senior fellow in economics at the Cato Institute...
...And it isn't...
...Earlier this year the president bizarrely described his administration's philosophy as "part Keynes-ian, part supply side...
...Tax cuts don't work...
...If this slight burst of prosperity stalls or turns into a double dip recession, the Bush team will have to eat its words, and the Daschle crowd will emcee the event: See, we told you so...
...The White House seems befuddled about its own tax cut...
...But the operative word here is "long term...
...The White House has been issuing triumphant press releases about how the president is responsible for this apparent recovery...
...The only supply-side tax cut that has so far taken effect in the Bush plan is a 1 percentage point reduction in the top income tax rate from 39.6 percent to 38.6 percent...
...Every administration wants to toot its own horn when times are good...
...Who in their right mind buys a car today, when they know that the big sale starts next week...
...No, it's his masterful handling of the war...
...Another argument put forward for how the tax cuts are helping the economy is the notion that the promise of the future income tax rate cuts is positively impacting business and consumer behavior today...
...growth rates, then we should get the government to send out $1,000 or even $2,000 rebate checks every August...
...Whether the Fed rate cuts can on their own pull the economy back onto anything like the path of nearly 5 percent real GDP growth that we saw in the late 1990s is anyone's guess...
...The problem with the administration's tax cut hyperbole is that overstating the impact of minor tax cuts could shatter Republicans' credibility—and undermine the intellectual case for supply-side tax rate reductions altogether...
...Confidence in Bush's war leadership has reduced the investment risk premium associated with the grave new threat of terrorism...
...BY STEPHEN MOORE FEELING BUOYANT and mighty relieved by the stream of good news on the economy for the first quarter of this year, the Bush administration refuses to leave well enough alone...
...One of the underappreciated causes of the explosive economic recovery in the 1980s was Reagan's unwavering commitment to defeating the Evil Empire...
...Feldstein argued that the tax plan has already had "expansionary effects" by providing "a substantial lift to demand" and a "greater stimulus to spend...
...But there are more and less intelligent ways of doing so...
...The White House does actually have a compelling story to tell about how the president's policies have helped restore economic growth...
...We are experiencing the early stages of a mini-recovery that has been inspired almost entirely by monetary policy corrections...
...That's a little like being part carnivore, part vegan...
...Similarly, the investment climate has turned bullish—at least for now—largely because the investor class in America trusts Bush to contain and defeat the forces of terrorism around the globe...
...Markets abhor risk, uncertainty, and threats to global commerce...
...It would have had precisely the opposite impact...
...Overselling the tax cut is yet another sign that this White House is incoherent in its economic thinking...
...So how could they have unleashed a recovery...
...And I write this as someone who favored the Bush tax cut...
...Moreover, even if one accepts the discredited Keynesian consumer-demand idea—as many in the White House evidently do—the evidence from this past fall indicates that most of the rebate dollars were not spent at all, they were stashed away in the bank and saved...
...More cheerleading came on March 13, when Harvard economist Martin Feldstein touted the Bush tax relief plan in a Wall Street Journal article entitled, "Tax Cuts, Rate Cuts Put the Economy Back on Track...
...The White House economic team not only shunned the idea but made fatuous arguments that this might depress the stock market...
...High tax rates penalize these activities...
...That investment climate would turn a whole lot more bullish if the Bush tax rate cuts were made effective immediately (not in five years) and made permanent (they're now set to expire in 2011...
...Economic growth is not driven by big spending consumers but by individuals engaging in acts of enterprise: investment, risk-taking, work, and deferred gratification...
...President Bush's Council of Economic Advisers has boasted that the Bush tax cut expanded economic output in the second half of 2001 by nearly a full percentage point and "helped put the economy back on the road to recovery in 2002...
...The main economic value of tax cuts is to reward productive behavior—and by that i don't mean rushing off with the credit card to Wal-Mart (or Neiman Marcus, for that matter) and filling the shopping cart...
...Republicans should keep up the fight for this common sense stimulus policy...
Vol. 7 • April 2002 • No. 29
