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June 25, 2007
On tax cuts
From the Christian Science Monitor, Commentary -- Still waiting for the tax-cut boost:
Economist Paul Kasriel is still twiddling his thumbs, waiting for the predicted good results in the economy from the major tax cuts of 2001 and 2003.
In an analysis a month ago for his bank, Northern Trust Co. in Chicago, he referred to the famous Samuel Beckett play, "Waiting for Godot," in which Godot never shows up.
Last week, Mr. Kasriel said he still can't detect the promised big boost in national output, investment, and savings from what economists call "supply side" tax cuts made by a GOP-led Congress and approved by President Bush.
"The data don't seem to support the hypothesis," he said in an interview.
Kasriel will be watching Friday's gross domestic product (GDP) report to see if the nation's output of goods and services in the first quarter is revised upward. In May, the Commerce Department reported that GDP rose at an annual rate of 0.6 percent after inflation, the worst three-month showing in more than four years.
With a recession under way at the start of this decade, the Republican leadership cut taxes in an attempt to get the economy moving ahead. The cuts were structured to lower marginal tax rates (the rate on the last dollars earned) on wage and salary income, and especially the tax rates on capital income, including capital gains and dividends.
"I don't think you could have ever seen a more scripted supply-side tax cut than under the Bush administration," says Kasriel.
Maybe, he adds, the economy would have performed worse if taxes hadn't been cut. But so far, GDP growth in the current economic recovery has been the slowest of any expansion since 1961. It is even slightly slower than the record-long expansion that began in 1991, during which presidents George H.W. Bush and Bill Clinton raised taxes.
I'm sure that there are a lot of people who would dispute this analysis. There is some evidence, I believe, that some of the individual tax cuts, especially in the lower and middle income levels help spur growth (or at least consumer spending) in the early part of the decade.
But, the effect of supply side tax cuts on the economy is still a debated proposition. For more, I would suggest Rob Atkinson's new book, Supply-Side Follies: Why Conservative Economics Fails, Liberal Economics Falters, and Innovation Economics is the Answer. I think their may be more to "liberal economics" than Rob give it credit, but I generally agree "innovation economics is the answer."
Posted by Ken Jarboe at June 25, 2007 9:19 AM
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