Did Bush tax cuts avert a recession?

Great Debates
21

Bush cut taxes because he wanted to cut taxes. He had campaigned on a platform of tax cuts, and during the campaign, the rationale was that the government was running surpluses, and so the money should be returned to the people. After the recession hit, he switched to a stimulus rationale.

As for the spending, his two major spending programs were the Iraq War and Medicare Part D, both of which were unfunded. Medicare Part D was primarily a political strategy to shore up the vote from his base, but who knows? Maybe he genuinely thought it was a good thing to help old people as well. As for the Iraq War, before the invasion, the Bush Administration estimated that the war would cost maybe $90-$100 billion dollars, and that most of that cost would be recouped from Iraqi oil revenues. So, neither of these spending programs were an attempt at Keynesian spending per-se. That doesn’t mean that we can’t look at their effects to finesse neo-Keynesian models, but I don’t really see that there was any actual neo-Keynesian rationale behind any of Bush Administrations’ programs.

Keep in mind that typically in a Keynesian framework, the tax cut or spending intervention comes when the central bank’s traditional tools are no longer able to get traction in the economy (for example, when the central bank has hit the zero lower bound on rates). In the case of the dot-com burst, the Fed still had a lot of slack to cut interest rates, and they did start to do that. So, that’s another reason I wouldn’t label the Bush administration’s policies Keynesian.

Finally, in a Keynesian framework, you want to look the the multiplier effect of a particular government policy. Some tax cuts or spending programs produce more bang for the buck than others, and some programs can actually have a multiplier effect of less than one (which would be harmful to the economy).

So, let’s take the tax cuts. Tax cuts for the poor tend to have a good multiplier effect, because poor people tend to spend all their money immediately. Tax cuts for the wealthy tend to have lower multiplier effects (although not necessarily detrimental effects). If your goal is to get more bang for the buck, then you target tax cuts to the poor instead of wealthy. In Bush’s case, the tax cuts were across the board, with the actual dollar amounts being weighted heavily towards the wealthy. So, I wouldn’t call these tax cuts Keynesian in nature, because they didn’t try to maximize multiplier effects. It’s possible you can’t really get Keynesian tax cuts in our system for political reasons, but as far as I remember, the tax cuts that Bush ended up getting were pretty close to what he had proposed himself to Congress.

But, Medicare Part D, I think can be said to have good multiplier effects from a Keynesian standpoint (and on a policy level, I think it’s good to help seniors out with their medications). But as I said earlier in this post, I don’t think Bush was thinking along Keynesian lines when he proposed this program.

22

Sorry if I’m being dense, but why does that matter? You asked for a cite for a specific claim, and I provided one.

Whether or not that claim was realistic is immaterial to the fact of the statement, which is that the Republicans thought a budget surplus implied an obligation to cut taxes.

23

Are you sure that much thought went into it? My impression was that the rationale behind the Bush tax cuts was something like, “Hey, let’s cut taxes!”

24

You hit the nail on the head here. Keynesian prescriptions fit both sides desire for government spending, therefore they prevail.

25

It’s always fun to watch the extremists on both sides argue with each other. :smiley:

As I see it, Obama is a liberal in most respects, but is also a political pragmatist who I’m sure is as frustrated as many of his supporters at how much his ideals have to be compromised in today’s insane right-leaning political climate and Republican intransigence. In health care, for instance, not only would he have preferred the “public option” to be a centerpiece of reform, but ideally would probably have loved to have instituted single-payer across the board as he once talked about, before he became a serious candidate and had to start watching what he said. You can hardly run for President with the nut jobs accusing you of plotting death panels!

Whereas Bush was a simple village idiot largely controlled by his PNAC-legacy neocon handlers on foreign policy and his political base and his own crackpot beliefs on economic policy, like the Laffer curve that was the basis of Reagan’s voodoo economics. Most economists strenuously opposed his tax cuts; when the 2003 cuts were proposed, no fewer than 450 leading economists, including ten Nobel prize laureates, lobbied against them. I posted a link upthread to the resultant record-breaking upsurge in the national debt. So much for the Laffer curve. So much for a strong economy. So much, too, for “mission accomplished”, WMDs, “democracy in Iraq”, and “making the world safer”. Putting a Texas village idiot in the White House is always a bad idea.

26

Glad I’m not the only one who remembers this sequence of events.

27

Funny how the surplus belonged to the people but deficits belong to nobody.

28

The more “economics” one takes in college, the more economically and ethically illiterate one becomes. I mean no offense to you personally. It sounds like you still have a good head on your shoulders.

First of all government acquires money by committing crimes. Taxation, the inflationary tax, borrowing and forcing unborn generations to pay the interest. These are all crimes. Are crimes good for the economy? If that’s the case, than a good economy is great for criminals and their beneficiaries, but very bad for their victims.

Government is a massive bureaucracy and a coercive monopoly. As such it’s incredibly inefficient. So government spending naturally wastes a tremendous amount of money on unproductive activities. It’s a gross misallocation of resources based on political motives instead of consumer demand, and it leads to all sorts of shortages, surpluses and unintended consequences.

As a coercive monopoly government spending drives competitors out of the market. In other words it destroys competition to serve consumers, thus lowering quality of life and increasing cost of living.

Obviously increasing government spending is bad for human beings in general. These phrases “spurring an economy,” “avoiding a recession,” “healthy economy” are euphemisms that pseudo-economists use to make the activities of a criminal organization sound legitimate.

Should Bush have cut taxes and increased spending? On the surface, no. You’re right. Bush does what any president does. They benefit themselves and their buddies at the expense of innocent people. That’s their profession.

But the deeper question is why do we need a Bush or Obama in the first place? Why are we listening to economics professors who think government spending is a good thing? And is a “healthy economy,” as they define it, something we really want?

29

Hold up.

Unless you are advocating some kind of “natural” law, this makes no sense.

Our government and its law are formed through the consensus of its citizenry. Some people (like you) clearly disagree with some of those laws. That doesn’t make any action with which you disagree a “crime”, excepting the invocation of a higher natural law.

This natural law might be fundamental to nature, but it’s obviously not - we can apparently “violate” this “law” with impugnity.

Or it comes from invoking a higher power. Well, no higher power to my knowledge has set down any laws regarding taxation.

30

You’re taking some extreme positions. No society can survive without a government, no government can survive without revenue. I think most of us can agree that there are some things that government does better than private industry, such as funding tht Interstate system, building the Hoover Dam, rural electrification, and national security. To take citizens’ money, pool it together and do things for the public benefit is the essence of good government. What you seem to be saying is that the absence of anarchy is a crime against nature.

31

We’re talking about decisions made in early 2001. At the time, the debt was shrinking daily thanks to the Clinton surplus; the sensible thing to do was leave that process basically alone, tweaking it as necessary to prevent the surpluses from becoming too large.

32

Not all deficit spending is equal. When the deficit spending is achieved through tax cuts for the rich, the money doesn’t have the same sort of mulptilier effect as dfood stamps of direct spending on infrastructure.

33

When you don’t have ideas, you have ideology.

34

This is quite true. From his (2000) campaign brochure:

35

Trust me, there was a recession in 2001, the natural response to the bubble of stock prices before then. In Silicon Valley companies wrote off billions of dollars of inventory as the expected sales of it collapsed.

Lowering taxes and increasing spending is the standard Keynesian remedy for a recession. The problem was that the tax cuts were heavily weighted to the rich, and so were not as stimulative as they should have been. Some came in the form of checks which are not as effective, since they tend to go to savings and not consumption, and thus don’t help demand. Obama’s cutting of FICA taxes in 2009 was designed to avoid this problem.
The Bush tax cuts, by the way, were designed to look good for someone making the average salary - but not at salaries around it.

What you are supposed to do is to increase taxes after the recession is over to reduce the deficit. Spending often takes care of itself as unemployment claims decrease, and to some extent so does revenue as more people have more jobs and thus pay more taxes.
This is what Bush didn’t do. As for the wars, he ignored them financially instead of asking people to pay more in taxes to pay for the supposedly necessary wars. Perhaps he thought support for Iraq would plummet if it actually affected anyone but the soldiers there and their families.

The 2001 recession was relatively mild, but the recovery was slow by historical standards. Many people think the recovery would have been faster if the tax cuts had been targeted to increase demand, not put money in the pockets of the already wealthy.

You’ve probably figure out you can ignore Dan Shielding. Flat Earthers flunk Geography and then complain that Big Geo is ruining the minds of students.

36

The goal of Republican politics is to cause such a debt problem that we have “no choice” but to dismantle social security and Medicare, so that the wealthy may pay less taxes and we all have less of that evil government. This is why we can’t get any common sense solutions out of Congress.

The Iraq war was predicated on lies, possibly as an excuse to screw up the balance sheet in order fo achieve long term GOP goals. Try to wrap your head around how evil that is.

37

Settle down. Sure, there are some Republicans who want to destroy the government. It’s not most of them, particularly around 2000.

38

It isn’t really evil if it’s just your own speculation, possibly backed up by one random quote on antiwar.com or something. There’s just no reason to believe that the Iraq war was intended to get rid of the social safety net. It’s pretty absurd.

39

The problem came from an inherent contradiction in Republican policies. Expensive war is good. Increasing taxes and thus revenue is bad. Conclusion - pretend expensive war doesn’t cost anything by hiding the price inside special appropriations. In other words, government spending is bad but we’ll pretend the war isn’t government spending.

40

I agree, but the appropriate “tweaks”, as more progressive nations had already deduced, was to use surpluses to pay down the debt. The national debt curve was starting to decline under Clinton. Under Bush, it took off like a rabbit with a firecracker up its rear end.

Of course. Knowledge is a curse on progress, and ignorance its guiding light. :smiley:

Oh, look, a cute little libertarian just hopped into the back yard! :slight_smile: