Case study: The 2001 Bush Administration federal income tax cut, which included a cut in the marginal tax rate to 35% from 39.6%. The Bush Administration touted it as a tax cut that would increase incentives to invest, save and work.
The result? The tax cut didn't work: saving and investment have been "anemic" during the Bush years, Baum said, citing data provided by Paul Kasriel, chief economist at Northern Trust Corp. in Chicago. Business investment is down, the savings rate is at a post-World War II low. Further, the labor participation rate has declined.
No guarantee tax cut would be invested in U.S.
But why didn't cutting the top marginal rate do all of the good things the Bush Administration touted? Economist Peter Dawson said the reason is the tax cut's inherent flaw.
"The tax cut contained the mistaken belief that rich taxpayers would invest their money and invest in the right way, in the U.S., to increase GDP," Dawson said. "There was no guarantee that they would do that. Someone who is rich could invest the money in Brazil or India, with little benefit for the United States."
Further, regarding GDP growth, government investments in infrastructure, education and basic research would have increased U.S. GDP by a far greater amount than cutting the tax rate to 35%, Dawson said. The reason? "Those public investments will simultaneously increase the nation's productive capacity and make sustainable growth more likely by expanding the pool of employees with good-paying jobs," Dawson said. "Absent an increase in good-paying jobs, sustained GDP growth is not possible. And in case any one hasn't noticed, the reason the U.S. economy is stalling now is that we're running out of consumers, basically running out of employees with good-paying jobs."
Economic Analysis: The 2001 Bush Administration' reduction of the marginal tax rate to 35% did achieve one goal: it granted a large tax cut to rich and very-rich Americans, a primary constituent group in the Republican Party. But in the process it increased the U.S. budget deficit and national debt at a time of increased spending for wars and for security, and it also caused the dollar to plunge. The view from here is that the tax cut will have to be reversed, and public investment in infrastructure, education, and basic research increased in order to achieve sustainable growth in these United States.
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Reader Comments (Page 1 of 1)
9-09-2008 @ 2:06AM
dsmeryage said...
This article is based upon totally false assumptions and is just a liberal attack on proven supply side tax cuts. Increasing government programs such as job training or work on infrastructure has a NEGATIVE effect on GDP as it will reduce the amount of private capital by confiscating it under increased taxes. It is a fairy tale to assume that thew government can create higher-paying jobs in private industry.... just think how ridiculous that concept is.
10-30-2008 @ 3:08PM
ed WOOD said...
>>
YES NUMB AZZ, IT'S ALL THE FAULT OF THE LIBERALS! THE TAX CUTS DID EXACTLY WHAT THEY WERE MEANT TO DO,KEEP BLEEDING THE MIDDLE AND LET THE RICH GET RICHER!
THIS HAS NOTHING TO DO WITH LIBERALS YOU STUPID SHET!
10-30-2008 @ 10:58PM
Irish said...
dsmeryage: Well, your argument about "liberals" would have clout if the failing economy didn't exist. I'm just surpirsed that this article was even written - as if this article was telling 95% of the struggling middle class about this for the first time when we've already known this - it's called "COMMON SENSE." The Republicans are now screaming about Obama "spreading the wealth," as if his intent is to force us into a welfare state, when in fact, it's about letting us keep what we earn instead of being forced to pay higher taxes and give it all to the rich. The wealth of this nation was already distributed - into the hands of a select wealthy bunch and corporations who invested their money not in the U.S., but anywhere that made their dollars grow - and the Republicans knew that. This time, the Republicans' greed got the best of them. With Obama as President - and he will be - the Republicans will be brought down to earth and have to EARN their money instead of getting handouts from the government and the American middle class - I'm REALLY going to enjoy the next EIGHT years! But...for now, I'm enjoying watching the Republicans toss out smears, fear tactics, insults, and performing actual temper tantrums because their wallets are being sewn shut and the middle class aren't falling for it this time.