7/13/2004

Tax Cuts...Good or Bad?

George Bush Junior’s tax cuts made a lot of Americans very happy because Bush promised them more money in their pockets which would bring them out of the recession. Most Americans knew that this would obviously decrease the amount of money that the government would take in, which would create a deficit. What they didn’t know, was that this deficit would be over $300 billion in the fiscal year ending Sept. 30. To counter this, the Bush administration came up with a $550 billion cut in government spending spread out over 10 years, which was eventually passed by the senate as $350 billion over a decade. Because of this, Congress plans to request for a $984 billion increase in the nation's $6.4 trillion debt limit to make room for further deficits. The International Monetary Fund says that the tax cuts couldn’t have come at a worse time because of the soaring costs we will face for Medicare and Social Security after the baby boomers retire. The Joint Committee on Taxation says that the tax cut will probably create a short-term boost to the economy, but will eventually slow the economy in the long run because of deficit spending. I support my Uncle George completely…in my opinion, there isn’t another that has stepped up that can do a better job. However, when President Bush was faced with the situation he was faced with, he should have told the American people the possible solutions. We could either wait it out like his father and point out the fact that our economy did recover and is in good shape, or we could have the tax cuts, but explain the negative effects that it would have in a few years and tell the voters that you aren’t just ignoring the situation, that you are going to just sit on your hands and let the invisible hand take care of us, just like it did before. He should have explained that he wants what is best for the country he loves, so he will not impose tax cuts that would help right now, but hurt us more in the long run.

2 comments:

Dr. Tufte said...

Always keep in mind that the President doesn't cut taxes, Congress does. So, even though Bush set the tone for the debate, and claims credit for the results, it wouldn't have gone through without legislative (and implicitly voter) approval.

So, what should we make of the pros and cons of the "Bush" tax cuts?

First, there is no theory that says that raising taxes when the economy is doing poorly is a good idea. So, anyone who argues that a tax cut was wrong probably doesn't have a leg to stand on. They could plausibly propose increasing government spending instead, but Bush did that, and there are many people who don't agree with the justification.

Second, there is no theory that says we should pay more attention to the deficit or debt than the underlying spending and taxation decisions. So anyone who says that we should not cut taxes because it might do something to the deficit of debt is probably looking for an excuse to avoid cutting taxes in the first place.

Put this all together, and I think this is about politics and not macroeconomics. There is a solid Keynesian justification for cutting taxes during a recession, which is what happened in 2001. The recession that resulted was fairly mild. It isn't easy to connect these empirically, but it's a standard textbook story of how things are supposed to work.

I have a hard time "taking" advice from the International Monetary Fund (even though I know a lot of economists that work there). Their track record is not great, and they appear to be a bureaucracy in search of a job to do (the're busybodies). Also, historically the IMF has been a European dominated organization, and right now there is a lot animus between France and Germany and the U.S., which makes me suspect that the IMF may not be an unbiased observer of Bush administration policies.

BTW, George Bush isn't a junior. The first one was George H. W. Bush, and this one is George W. Bush. Think about it ... since he's from Texas ... if he was a junior they'd call him that all the time instead of Dubya. ;)

My PC is acting funky, so I'm going to post this and then perhaps add another comment.

Dr. Tufte said...

As I've said in class, politicians job is to spend other people's money (and that doesn't invite good decision making).