Tax cuts and economic growth

By • on June 27, 2013

Another great New York Times Economix blog from Bruce Bartlett entitled “the Bush tax-cut failure”. Bartlett is one of the original supply side tax cutters. He served as senior staff to, among others, Jack Kemp, Ronald Reagan and Ron Paul. (By the way, his new book “The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take” is a terrific primer on federal taxes.)

This blog is focused on the third round of Bush tax cuts. Mainly the huge tax cut in the dividend tax rate (from 35 to 15 percent). It comes on the 10th anniversary of its adoption. As Bartlett recounts the justification for the dividend tax cut was the elimination of so-called double taxation. The prognosis from its supporters was a major shot in the arm for economic growth.

Double taxation, as you will recall, was also the justification for the elimination of state business taxes on most Michigan businesses. Also with a prognosis of turbo charging the Michigan economy.

How well did the Bush tax cuts work? As  Bartlett writes the evidence is overwhelming that they did not contribute to economic growth. So much so that: “It is hard to find even a reputable conservative economist willing to say anything good these days about President Bush’s tax and economic policies. In 2009, the Harvard economist Dale Jorgenson said he saw no redeeming features in them. In 2011, the economist Alan Viard of the conservative American Enterprise Institute told Bloomberg News, “The effects of the Bush tax cuts on growth were ambiguous at best.” He added, “They were not much of a poster child for pro-growth tax policy.””

Bartlett concludes with the current thinking of R. Glen Hubbard, Bush’s Chairman of the Council of Economic Advisers and the major proponent of the tax cuts. Bartlett writes: “Mr. Hubbard even suggested that higher revenues, long a Republican no-no, were not a bad thing. “We need a tax system that can promote economic growth and raise the revenue the American people want to devote to government,” he said.” (Emphasis added.)

You read that right the main architect of the Bush tax cuts arguing that we need to raise revenue (economist speak for a tax increase). Tax cuts in general, and particularly ending so-called double taxation of business income, didn’t grow the national economy and almost certainly won’t the Michigan economy.

Its time Michigan policy makers –– of both parties –– learn the lesson of  the “Bush tax-cut failure” that tax cuts aren’t the answer to economic growth.

 

 

 

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