If McCain’s Tax Cuts Will Create Jobs, Why Haven’t Bush’s?
September 5th, 2008 . by economistmomIn his acceptance speech last night, Senator McCain had this to say about the economic wisdom of his proposed tax cuts:
I will keep taxes low and cut them where I can. My opponent will raise them… I will cut government spending. He will increase it. My tax cuts will create jobs; his tax increases will eliminate them… We all know that keeping taxes low helps small businesses grow and create new jobs…
I know some of you have been left behind in the changing economy, and it often seems that your government hasn’t even noticed… That’s going to change on my watch…
But whose government and whose economy has left these Americans behind? (I doubt anyone would try to defend the suggestion that it’s the “Obama economy” any more than you could call it the “McCain economy”–they’ve both been serving in the current Congress after all…) And how is the centerpiece of McCain’s economic plan (full extension of the full complement of the Bush tax cuts) any different from “staying the course” on Bush economic policy? What is the ”change” in economic policy that McCain is talking about?
(I know that the McCain-Palin ticket is trying to portray themselves as the ticket of “reform” in emphasizing how they will eliminate earmarks and otherwise cut waste, fraud, and abuse. Unfortunately, those things don’t amount to a hill of beans, and although that doesn’t mean the economy wouldn’t benefit at least a little from cutting wasteful spending, this kind of “reform” isn’t going to create millions of new jobs. Heck, some of that wasteful spending might actually support some (wasteful) jobs…)
And this morning–less than 12 hours after McCain’s speech suggesting that a “stay the course” position on the Bush tax cuts would create lots of jobs–the bad news from the Labor Department:
(from CNN-Money:) The unemployment rate soared to a nearly five-year high in August as employers trimmed jobs for the eighth straight month, the government reported Friday.
The unemployment rate rose to 6.1%, the highest level since September 2003. That’s up from 5.7% in July and 4.7% a year ago.
In addition, the economy suffered a net loss of 84,000 jobs in August, according to the U.S. Department of Labor, compared to a revised reading of a 60,000 job loss in July.
The U.S. economy has lost 605,000 jobs so far this year.
So Senator McCain’s claims regarding the “change” he’d bring to economic policy and all the jobs the tax cuts would generate seem less than compelling. Many of the political pundits on cable TV (whether Republicans or Democrats) seemed to notice that as well (follow links to the YouTube videos):
MSNBC Former Republican Speechwriter for President Bush Michael Gerson – “The policy was the problem, the policy in the speech was rather typical for a Republican, pretty disappointing. It didn’t do a lot of outreach to moderates and independents on the issues that they care about. It talked about issues like drilling and school choice, which was really speaking to the converted. I think that was a missed opportunity. Many Americans needed to hear from this speech something they’ve never heard from Republicans before and in reality a lot of the policy they’ve heard from Republicans before.”
CNN David Gergen – “I did not think that the substantive part of the speech worked very well. It was mostly a rerun, retread of a lot of old Republican ideas that have brought us to where we are now. I think the country is looking for fresh answers. It’s hard to separate yourself out from President Bush when you essentially have the same economic policies as President Bush. I thought that the policy presentation was a little thin.”
MSNBC Rachel Maddow – “Honestly it was sort of like a long term paper about Bush Republican economics…But people aren’t mad at Barack Obama about the economy people are mad at George Bush about the economy and he just proposed a lot of Bush’s economic ideas. I think he really missed that.”
So, how convincing was McCain’s claim of “change” regarding the economy to you? Am I just missing something in the messaging here? Who are the people who are supposed to be convinced by this?
***Full disclosure: remember, I am writing only from my own perspective as EconomistMom and not to represent the views of my employer, the Concord Coalition. Also, I am writing from Yellow Springs, Ohio (outside of Dayton) today, as I am attending a yoga workshop here this weekend… and I have just discovered that Yellow Springs is a very liberal (you could say “hippy”) enclave tucked within an otherwise pretty conservative part of Ohio. (McCain unveiled Palin here, after all.) I will post something fun about Yellow Springs and my weekend here tomorrow.
Enjoy your week-end, but the first polls from after Sarah Palin’s speech are very positive for her (and McCain):
http://www.rasmussenreports.com/public_content/politics/election_20082/2008_presidential_election/palin_power_fresh_face_now_more_popular_than_obama_mccain
‘Palin is viewed favorably by 58% of American voters. The latest Rasmussen Reports national telephone survey finds that 37% hold an unfavorable view of the self-described hockey mom.
‘The figures include 40% with a Very Favorable opinion of Palin and 18% with a Very Unfavorable view. ….
‘The new data also shows significant increases in the number who say McCain made the right choice and the number who say Palin is ready to be President.’
Ugh. Many of the tax cuts have already expired, and the capital gains/dividends tax cuts expire in January of next year. We already have one of the highest corporate tax rates in the world. Investors and business owners aren’t stupid, and they won’t necessarily wait until taxes increase to adjust.
The expired (and soon expiring) tax cuts are factor in the current rise in unemployment. The increased scarcity of credit and high cost of commodities sure seem likely to be greater factors - and they are kinda like tax increases…hmmm.
All things being equal, it stands to reason that more jobs will be created in a low-tax state than a high-tax state. But, we have the perfect experiment. Lets wait and see how many jobs those 2007 tax increases in Michigan create. I look forward to your post on that.
Ah, how quickly they forget.
Remember that in Bush’s first year of office, he had to deal with both the dot-com crash and 9/11. Even so, unemployment was often better then some of the Clinton years.
The last year+ has been worse in the US, because rising energy prices have triggered a recession.
It’s important to handicap Bush appropriately when discussing the economic policy.
Meanwhile, the Bush years didn’t _feel_ like the growth period they mostly were because even though total compensation rose (wages+benefits) , wages themselves were flat. In essence, rising health care costs sucked away all the growth.
That’s one of the reasons McCain’s health care plan is much more interesting and practical then Obama’s.
Your commenters are missing the boat–always finding an excuse for lame economic news under Republicans by blaming it either on conditions when they came on board (but there was a huge surplus when Bush took office, and a much huger deficit now) or on some (uncontrollable, they claim) third party–health care costs. The reason the vast majority of Americans are not doing well is because almost all of the puny economic growth under Bush has gone to those at the very top of the income and wealth distribution. Everybody else has stagnated or even declined. The reason there has been that kind of economic growth is that the tax policies have inexorably favored the wealthy (McCain’s would give the wealthy a huge tax cut, Obama’s would serve the ordinary guy), and economic policies that favor the wealthy tend not to lead to the broad-based economic growth that raises everyone’s boats. Health care costs are out of control, because we have favored Big Pharm (no negotiation of prescription drugs) and Big Insurance (failing to move towards what every other western democracy knows works better–a single payer, single provider system) at the expense of the 47 million uninsured and the many more who have lousy health care because insurers spend too much of their time trying to figure out how not to cover the truly sick.
Besides, didn’t anybody else feel disgust hearing McCain go on and on bragging about his POW experience. As though being stuck in a cell with other prisoners makes him qualified to make decisions as a commander-in-chief of the armed forces (it doesn’t mean he knows anything, really, about war other than how to suffer through one). Do we really want someone who describes himself as economically challenged leading the country with the same old policies that have gotten us in this mess, starting with the Reagan deregulation, privatization, and corporatization of the economy and continuing through Bush II?
EconomistMom, meet Governor (soon to be VP) Mom:
http://www.foxnews.com/video2/video08.html?maven_referralObject=3073680&maven_referralPlaylistId=&sRevUrl=http://www.foxnews.com/ontherecord/index.html
Poor Joe Biden. How’s he going to attack Piper’s mommy?
pidgas wrote:
Ugh. Many of the tax cuts have already expired, and the capital gains/dividends tax cuts expire in January of next year.
Didn’t you hear the news? The Tax Increase Prevention and Reconciliation Act of 2005 extended the expiration of the capital gains/dividends tax cuts by two years, to January 2011. That is when the great majority of the Bush tax cuts are set to expire. However, both presidential candidates are talking about extending at least some of those tax cuts.
All things being equal, it stands to reason that more jobs will be created in a low-tax state than a high-tax state. But, we have the perfect experiment. Lets wait and see how many jobs those 2007 tax increases in Michigan create. I look forward to your post on that.
We’ve already had a nearly 60-year experiment in job creation. At this link, I’ve posted updated employment data from every one of the 15 presidential terms since 1949. In almost every term of a Democratic president, the growth in household survey, nonfarm, and private employment was greater than the growth in the labor force. Conversely, in almost every term of a Republican president, the growth in household survey, nonfarm, and private employment was less than the growth in the labor force. The only two exceptions in the 15 terms were Carter and Reagan’s second term.
A related fact is that the unemployment rate went down during almost every term of a Democratic president and up during almost every term of a Republican president since 1949. This follows from the prior fact because the unemployment rate equals the unemployed (labor force minus the employed) divided by the labor force from the Household Survey. In any case, the only exceptions to this second fact was Carter (when the unemployment rate stayed about the same) and both terms of Reagan.
Similar results are cited in an article that appeared today on the Huffington Post. Following is an excerpt:
No Republican President — not Eisenhower, not Nixon, not Reagan, not Bush — has ever created more jobs, or created jobs at a faster rate, than his Democratic predecessor. It’s not even close. The contrast has been especially stark over the past 16 years, when 23.1 million jobs were created under Clinton and less than 5 million were created under Bush. On average, job growth under Democrats is more than twice that under Republicans.
Of course, the unemployment rate is doubtlessly affected by many other factors. However, I don’t see how anyone can seriously suggest that Republican policies are proven job creators. The evidence from the past 60 years clearly suggests otherwise.
We’ve already had a nearly 60-year experiment in job creation … the unemployment rate went down during almost every term of a Democratic president and up during almost every term of a Republican president …
B Davis: I know this has become a popular Democratic election-year meme of the moment, but even Paul Krugman has shaken his head over it.
First: There is no known mechanism for it to be causally true. Electing a president from a party (not even a Congressional majority from the party!) is not an economic policy. What is the Democratic v Republican economic policy difference over those 60 years that you’ve identified that produces this result?
Second: Say “small sample size”. (Did you know that the stock market overwhelmingly has gone up after an NFC team wins the Super Bowl, and down after an old AFL/AFC team does? And that’s a much larger sample size, 42 Super Bowls v 11 presidents. Do you propose setting investment policy on the basis of that?)
Third: Getting back in touch with reality, it takes time for an economic policy to have an effect. Monetary policy takes 12, 18 months. Fiscal and other administrative policy takes a lot longer than that.
Now, guess what happens if you lag the economic results you cite two years after the election of a new president? To give the new president’s policies time that reality to actually take effect. The results you cite totally disappear.
For instance, Democrat Jimmy Carter left office leaving behind double-digit inflation. That forced the Fed (not the Republicans) to engineer the worst recession since the Great Depression itself during Repubican Reagan’s first two years — creating double-digit unemployment.
Yet your experimental result credits the huge increase in unemployment during that recession to to Reagan policy, somehow not to Carter policy. You actually reward Carter for policy that created the 13% inflation that the Fed later had to take out of the hide of the workforce! I am not impressed.
One might point out that similarly the last Clinton years saw an unsustainable bubble — very notably in employment, among other things — that burst creating a recession just as Bush II took office … in fact, a tad *before* Bush II took office.
But your experimental result rewards the Democrats for the bubble, punishes the Republicans for inherting the rubble when it burst.
And also you might remember Lyndon Johnson’s “guns and butter” inflationary surge that was great on his watch, but lead to the stock market collapse in 1969, just exactly as Nixon took over, and all the consequences of that.
I’m not going to apologize for Nixon’s own putrid policies like wage-and-price controls, but they were imposed on an inflation he inherited.
Then of couse add the effects of the Arab oil embargo and the first oil crisis on the employment numbers in Nixon’s term.
I’m not sure his presidential policies were any more responsible for that oil crisis than Dubya’s were for oil hitting $140 during his term, or than Clinton’s were for the price of domestic-produced US oil plunging all the way down to $8 (eight!) during his term.
As it happened those three huge oil price swings had *big* effects on US employment totally unrelated to what party held the White House — but they happened to break against the Republicans twice and for the Democrats. Say: “small sample size”.
Thus I suggest that you re-run your 60-year experiment with employment numbers credibly lagged two years, then measure the significance of the result you get by the size of the sample, and tell us what you find then.
Jim Glass wrote:
We’ve already had a nearly 60-year experiment in job creation … the unemployment rate went down during almost every term of a Democratic president and up during almost every term of a Republican president …
B Davis: I know this has become a popular Democratic election-year meme of the moment, but even Paul Krugman has shaken his head over it.
Can you please post a link to the article (and/or video) where Krugman does his head-shaking? When I googled for [Krugman "job creation"], the first selection is his June 11th blog entry titled “Job creation?”. Following is the text of that entry (it also includes a chart):
Dean Baker is upset at a news report suggesting that John McCain — unlike Barack Obama! — is concerned with job creation.
I feel his pain. If there’s one thing that stands out above all over the economic record of the past 16 years, it’s the contrast between stellar employment performance under Clinton and dismal performance under Bush. You can offer various excuses and explanations, but how anyone can suggest that Republicans are more committed to and/or credible about job creation is a mystery.
The second google selection points to an article that references Krugman’s New York Times article of April 22, 2003 titled “Jobs, Jobs, Jobs”. Following is an excerpt:
So when you take the policy consequences into account, it’s clear that the administration’s tax-cut obsession isn’t just busting the budget; it’s also indirectly destroying jobs by preventing any rational response to a weak economy. In its determination to stay on message, the administration is also determined not to do anything that would actually help ordinary families.
First: There is no known mechanism for it to be causally true. Electing a president from a party (not even a Congressional majority from the party!) is not an economic policy. What is the Democratic v Republican economic policy difference over those 60 years that you’ve identified that produces this result?
As I stated in the post linked to by my prior comment and in the recent posts at my blog, it is debatable exactly now much a president can effect the creation of jobs. However, there are policy differences which I think are much more plausible than McCain’s claim that “keeping taxes low helps small businesses grow and create new jobs”. For one, I believe that deficit-financed tax cuts may have a negative effect on job creation. My initial response to the Bush tax cuts was to start saving more and investing more conservatively. That’s because I was aware of the already existing long-run projections of rising deficits put out in the U.S. Budget and by the CBO. Hence, I believed that the Bush tax cuts were unsustainable and would put our finances in a deep hole. Of course, most individuals are not aware of these projections and may have had no such response. However, most large companies (and many small companies) likely are more aware of the economic outlook. Hence, the uncertain outlook may well have caused many of them to be more conservative and do less hiring.
Of course, the above explanation would only apply back as far as Reagan. There is also a more general policy difference which may apply farther back. In general, the Democratic party is seen to be more concerned with workers and the Republican party is seen to be more concerned about business. This is not meant to be a judgment call as both groups deserve concern and both parties may have concern for both groups. In any case, lower unemployment is generally seen to be better for labor and higher unemployment is generally seen to be better for business, just on a supply and demand basis. There is a chance that this finds its way into various policies promoted by the parties, consciously or unconsciously.
Second: Say “small sample size”. (Did you know that the stock market overwhelmingly has gone up after an NFC team wins the Super Bowl, and down after an old AFL/AFC team does? And that’s a much larger sample size, 42 Super Bowls v 11 presidents. Do you propose setting investment policy on the basis of that?)
60 years and 15 presidential terms is a much larger sample size than you hear in most political discussions. I’m sure you’ve heard supply-siders who claim that the increase in revenues during the terms of Kennedy, Reagan, and Bush proves that tax cuts create higher revenues. Nevermind that revenues have risen in just about every presidential term since the Great Depression. Also, the Super Bowl example is flawed. By my count, the NFL/NFC won 24 Super Bowls and the AFL/AFC won 7 Super Bowls from 1967 to 1997. And the market, as any investor knows, goes up more often than it goes down. Hence, there tended to be a correlation between the often-winning NFL/NFC and often-winning stock market. Since 1997, the Super Bowl indicator has been much closer to 50 percent. In any case, it makes much more sense to look at probability theory than to look at the Super Bowl indicator. If you wish, I can calculate the chance that a binomial event will occur 12 or 13 out of 15 tries (as in my “small sample size”). Or someone reading this may be able to provide the answer.
Third: Getting back in touch with reality, it takes time for an economic policy to have an effect. Monetary policy takes 12, 18 months. Fiscal and other administrative policy takes a lot longer than that.
Some effects have a lag time time and some do not. As I mentioned above, I had an immediate reaction to the passage of the Bush tax cuts.
Now, guess what happens if you lag the economic results you cite two years after the election of a new president? To give the new president’s policies time that reality to actually take effect. The results you cite totally disappear.
It sounds like you’ve already done the calculation. If so, feel free to present them.
Thus I suggest that you re-run your 60-year experiment with employment numbers credibly lagged two years, then measure the significance of the result you get by the size of the sample, and tell us what you find then.
Since you believe that a two-year lag time and the size of the sample is important, I suggest that you re-run the numbers and tell us what you find. I have provided all of the numbers and sources at this link.
It is not my experience that states with low tax rates are better off economically than those who tax enough to have good school and infrastructure.