Jobs and Tax Cuts
Noam Scheiber argues that the Bush tax cuts in fact were stimulative.
Liberals in Congress and at places like the Economic Policy Institute complain that the Bushies should have targeted the bulk of their tax cuts toward the working poor and middle class, who were more likely to spend their tax savings than more affluent beneficiaries were…
…[However] there is evidence that affluent people spend a higher proportion of their income than economic models have traditionally predicted. And, Democrats’ complaints notwithstanding, the tax cuts provided plenty of stimulus when it counted. In all, according to Stephen Roach, Morgan Stanley’s chief global economist, the tax cut provided about 1.5 percentage points of economic growth last year (which amounts to about $150 billion in a $10 trillion economy).
That is why I think that President Bush deserves a decent grade on his macroeconomic report card. The complaint that the tax cuts went to “the wrong people” simply does not fit the macroeconomic facts. The problem with the economy is not a shortfall of consumer spending. The biggest mystery is not that there is a high savings rate (there is no such thing), but that there is a large gap between output growth and employment growth.
Scheiber points out that the gap between output growth and employment growth is “good news,” because by definition it is productivity growth. Whatever the explanation for that gap, it has nothing to do with giving tax cuts to “the wrong people.”
UPDATE: Brad Delong writes,
A fiscal policy that redirected tax-cut-for-the-rich money to the states, that compressed the deficit and delivered more short-term stimulus, and that did target more tax cuts at the non-rich would have had no trouble delivering twice as much stimulus.
I’d like to see him spell this out in terms of specific dollar amounts, and run it through a macroeconomic model.
For Discussion. What essays have you read that make a convincing argument that alternative fiscal policies could have produced a stronger recovery?