Those tax cuts are a real piece of work

‘UNFORTUNATELY, just as we are seeing how our tax cuts have created jobs and opportunity, some in Washington want to repeal the tax relief,” President Bush says in one of his standard speech lines.

Actually, lots of people outside Washington want to repeal the tax cuts as well. But because I happen to live in Washington and want to repeal the tax cuts, maybe I should explain our thinking to the president.

We’re running deficits of more than $300 billion even at the peak of an economic expansion. The Republicans have no plans to cut spending anywhere close to the level we would need to make a dent in that figure. If we can’t end tax cuts now, when can we? We couldn’t cancel the tax cuts three years ago because the economy was in a recession. Now we can’t cancel them because the economy is growing. I’m starting to suspect there’s never going to be a good time.

Bush’s trump card here is his claim that the tax cuts have created jobs. How can us hard-hearted Washington denizens think of reducing the deficit if it’s going to cost hard-working Americans their jobs? (At which point, I guess, they would no longer be hard-working.)

So the question becomes whether Bush’s tax cuts have really created new jobs.


The White house and its allies like to focus on the approximately 4 million jobs that have appeared since the 2003 tax cut. If the year 2003 sounds suspicious, it ought to. Bush first promised that his 2001 tax cuts would create jobs, and then he promised the same thing with a new round in 2002. Instead, the job market kept shrinking. Bush cut taxes again in 2003, and this time jobs came back.

Of course, the job market was bound to bounce back sometime, so if you keep cutting taxes every year, you can just point to your last one and say it did the trick. (Or else all those previous tax cuts failed utterly, in which case we ought to repeal them.)

So anyway, the true measure is that the economy has created about 2 million new jobs since the first Bush tax cuts in 2001. It’s not that impressive of a number. Through the first six years of the Clinton administration, nearly 18 million new jobs were created. Do I think all those jobs happened because of Clinton’s policies? Not even close. But if you’re going to credit Bush’s tax cuts with every new job that’s appeared, Clinton’s policies (including tax hikes) deserve the same credit.

What makes the 2 million new jobs even less impressive is that, as Lee Price of the Economic Policy Institute notes, over that time span 2.8 million new jobs have been created as a result of government spending. A majority of those jobs are in defense -- mainly military contractors. Others have come through the spending boom in other areas since Bush took office.

Needless to say, it’s not the magical incentive effects of tax cuts that created those jobs. It’s old-fashioned big government. If you subtract the government-created jobs from the total, you’re left with ... a negative 800,000 new jobs, give or take.

In Bush’s defense, it’s perfectly fine to use government deficit spending to create jobs when the economy falters. In fact, that’s exactly what Keynesian economists recommend. If you do that even when the economy is booming, though, you’re simply borrowing from the future. Which is why Keynesians also say that during a boom the government should pull back, or even run surpluses to sock away money for rainy days. Because at some point the economic expansion is going to end.

And I’m guessing that, at that point, Bush won’t be holding his tax cuts responsible for what happens anymore.