Um Bush’s tax cuts were not Keynesian. Where is this nonsense coming from? The tax cuts focussed on cutting the top marginal rate which is very much a supply-side idea. The supply-side usual suspects like the WSJ and Kudlow strongly supported the tax cuts, Keynesian economists like Krugman strongly opposed them. Modern day Keynesians don’t believe that long-term tax cuts are a good response to recessions especially when monetary policy doesn’t face the zero bound.
So if we lowered the employee side social security contribution in half, that would not be stimulative?
I agree, we don’t have a supply problem in this country. Folks aren’t waiting on teh sidelines withy their cash waiting for the after tax return on investment to exceed some hurdle rate, they are waiting for the demand to take up the slack in supply.
I think unemployment is a more serious problem than the deficit. I also think the best way to deal with the deficit is to hike taxes on the rich. They are doing well while the rest of the country suffers.
[QUOTE=Lantern]
Um Bush’s tax cuts were not Keynesian. Where is this nonsense coming from?
[/QUOTE]
Reality? The first set of tax cuts/stimulus were standard boiler plate Keynesian. The second set of tax cuts were not. There was more than one tax cut, and it was directed at more than just The Rich™.
-XT
Not really.
The excuse for the 2001/2003 tax cuts was that we didn’t need to be running surpluses and should be giving the money back in the form of tax cuts.
That’s deeply anti-Keynesian. The boiler plate Keynesian response is to keep taxation levels where they are in good times and pay off accumulated debt.
As for the stimulus measures in the face of the recent recession, a stimulus of some sort was certainly Keynesian. But the amount was not. Most, if not all, Keynesian economists said the stimulus was too small even before it was enacted.
If by “boiler plate Keynesian”, you mean a caricature, you are correct.
We were in a recession in 2001, and the stimulus/tax cut was specifically to address that recession. That’s not a caricature of Keynesian economics, it’s pretty much boiler plate of what you are supposed to do in that situation. How large or small the stimulus is ‘supposed’ to be is always debatable, but the type of stimulus here was exactly what Keynes called for.
-XT
Yeah…last time I checked your scattershot cites, I found that one of them related to qualitative easing and another related to a stimulus program enacted by the Canadian government.. The rest seemed to be opinion pieces. They didn’t really bolster your argument, so I can see why you’re not reposting them. Although I admit that it was hard to tell if you were being intellectually dishonest with your cites or just extremely careless.
Yes, and I agree that the 2009 stimulus was Keynesian in type, if not in quantity.
But calling the 2001 cuts Keynesian is not apt. A stimulus is supposed to be temporary. You can trot out the fact that it had an expiration date, but the expiration was a decade off. One only has to see what actual Keynesian economists said about the tax cuts at the time to see that the cuts had a little of the form but not the function of Keynesian style stimulus.
Tax cuts can be part of Keynesian stimulus of an economy, agreed.
But you’re basically putting Keynesian lipstick on a supply-side pig and calling it a supermodel.
The 2001 tax cuts were NOT supply-side. Do you guys even know what supply-side tax cuts are? Or are you just assuming that any tax cut by a Republican must have been a supply-side cut?
Here are the actual changes in the tax code from Bush’s 2001 cuts:
The only things in there that could even remotely be called ‘supply side’ are the property tax deduction and a small cut in capital gains taxes under certain conditions, and even that depends on who qualified.
The other tax change was intended to boost private retirement savings - a series of changes to retirement plans to encourage people to save more and for businesses to offer better retirement programs. This is neither supply-side or demand-side, but rather an attempt to get people to take more personal responsibility for their own retirement.
There were also changes in gift and estate taxes, which I suppose you could consider partly supply-side if they were considered to be a factor in small business investment, but I don’t believe the money involved in these changes was a significant portion of the overall package.
Furthermore, there was an immediate tax rebate for all people who paid taxes. The rebate was up to a maximum of $300 for single filers with no dependents, $500 for single parents, and $600 for married couples. This rebate was sold specifically as a Keynesian stimulus. I remember the debate over them well. They were described as, “putting money in the pockets of the people right now to help get the economy moving.” The criticism of that rebate in the next couple of years was that it was supposed to boost spending, but the data showed that people just saved it instead.
You can not have a better example of a Keynesian stimulus than having the government borrow a bunch of money in a recession, then cut checks for every taxpayer in America in the hope that they’ll spend the money and boost aggregate demand.
Also notice that the 2001 tax cuts went into effect immediately for low income earners, but were phased in over five years for higher income earners. Again, the theory was that people with low incomes are more likely to spend the money, so the stimulative effect of low income tax cuts would be higher and therefore should happen first to help get the economy out of recession.
From the book Return to Keynes by economics professor Bradley W. Bateman, who has written several books on Keynes:
Bolding mine.
Keynesians tend to be skeptical about tax cuts versus government spending as fiscal policy in the first place. Furthermore 2001 cuts were heavily focussed on cutting rates at the top bracket which IIRC was about 40% of the total tax cuts. That is most certainly not a Keynesian idea; it’s a classic supply-side policy. Finally Keynesians certainly don’t believe in permanent tax cuts as a response to the business cycle. The Bush tax cuts were supposed to last for 10 years but everyone knew that was an accounting gimmick and the intention was that they would be permanent. Those who supported the tax cuts are the loudest in arguing that they should be extended in full.
It’s really odd that this “Keynesian” tax cut was strong opposed by prominent Keynesian economists like Krugman and strongly supported by prominent supply-side commentators like Kudlow and the WSJ.
The rebate portion of the tax cut may have been Keynesian but that was only a small and temporary part of the tax cut. The bulk of the tax cut was most certainly not Keynesian. Some quote by an obscure economist from some obscure book doesn’t change that.
Do you have a cite for that? A 4% cut to the top rate is accountable for 40% of the total cost of the tax cut? The total cost of the 2001 tax cuts was estimated by CBO to cost about $1.1 trillion dollars. Of that, the rebate checks alone cost $270 billion from the information I could find. I find it hard to believe that the cut to the top bracket was responsible for 40% of the total.
No, it is not. Supply side tax policy is all about stimulating investment in business. Cutting personal tax rates is not the primary tool of supply-side economics. Instead, supply-side cuts focus on capital gains, dividends, business depreciation, etc. The larger 2003 tax cut WAS primarily supply-side; the 2001 cut was not.
Au contraire. The reason for making tax cuts permanent is to avoid the permanent income hypothesis, which says that people will simply save a short-term gift, but will actually modify their spending behavior if they think a tax cut is a permanent shift in their expectation of lifetime wealth. That was the argument used against the rebate checks - that people would simply save a windfall payment - and that turned out to be correct.
It’s not surprising at all, since the people you mentioned are strong partisans who would oppose puppies if their opponents bought one.
$270 billion in one shot is not small compared to the 10 year cost of 1.1 trillion. And I thought you just used the argument that the rate cuts couldn’t be Keynesian since they’re permanent, and now you’re citicizing the rebate because it was temporary?
He is Gertrude B. Austin Professor of Economics, was the chairman of Grinnell’s economics department, and is now provost at Denison university, a top-50 liberal arts college, and a recognized authority on Keynes. Frankly, I’ll put his credentials up against your opinion.
Have you heard of the Laffer curve? Does the phrase “top marginal rate” ring a bell? The supply-side movement has always believed in cutting personal taxes as a way of improving incentives to work and invest. I am amazed that anyone would claim otherwise.
Well there are two points here. Some Keynesians might well believe that the permanent income hypothesis may not be universally applicable. Also the PIH may be an argument against temporary tax cuts but the Keynesian alternative wouldn’t be permanent tax cuts it would be government spending.
Again the idea that Keynesians believe in permanent tax cuts as a response to a recession is really bizzare. You are just completely misinformed about this subject.
How exactly is Krugman a partisan as opposed to a principled defender of certain policy positions? He has strongly criticized the policies of the sitting Democratic president because he feels stronger Keynesian policies would be more appropriate. He has been a strong proponent of Keynesian policies for a long time. So have the likes of Alan Blinder and Brad de Long who are prominent Keynesian economists who opposed the 2001 tax cuts. Of course each one of them is a lot more prominent than Bradley Bateman. So it’s not my credibility versus Bateman but the credibility of the most prominent Keynesian economists in whose ranks Bateman definitely doesn’t belong.
Really it’s not that difficult. The usual free-market types who are anti-Keynesian strongly supported the 2001 tax cuts and want to make it permanent. Every prominent Keynesian economist that I can think of who commented on the tax cut criticized it and generally they want at least a partial repeal.
If a policy is strongly supported by anti-Keynesians and strongly criticized by Keynesians it’s almost not necessary to look into the details; it’s obviously not a Keynesian policy.
Not to mention that a few years ago Sam was head cheerleader for the Bush tax cuts and back then said they made the case for supply side economics. Now that he joined the Austrian cult the massive bush income tax cuts for top earners and cuts in capital gains tax are suddenly Keynesian.
I did NOT say that capital gains tax cuts and cuts for top earners are not supply-side. I specifically said that capital gains cuts WERE supply-side. I said that personal income tax rates were not primary supply-side tax cuts, but that cuts to dividends, capital gains WERE. The assertion I was questioning was whether the cuts to the top margin really were 40% of the total cost of the cuts, and asked for a cite - which I did not get.
You could say that cuts to the top brackets are somewhat supply-side oriented, as were the changes to the estate tax. But I also pointed out that those changes were to be phased in over five years, while the changes to the lower brackets were to take place immediately. Again, the rationale for this was Keynesian - to get money into the hands of the people most likely to spend it as quickly as possible.
Supply side economists have always believed in cutting marginal rates of taxation on income. They have never focused solely on the capital gains tax or the estate tax. Here is a typical articleon supply-side economics from EconLib. It talks about marginal tax rates in general as something that reduces the incentives to work. While supply-siders may place special focus on the top marginal rate their arguments apply to all marginal rates.
In any event the 2001 tax cuts focussed on the higher income tax rates in addition to the estate tax phase out. According to this CTJ analysis: 38% of the cuts went to the top 1% and 70% to the top 20%. So it’s hardly surprising that right-wing commentators with a supply-side orientation overwhelmingly supported these cuts and Keynesians opposed them. Once again Keynesians don’t support permanent tax cuts as a response to a recession.
Looking at that link, it doesn’t seem to include the $270 billion dollars in cash handed out to taxpayers in 2001, which would skew the data decidedly downwards since it was given out in identical lump sums regardless of income so long as you were above the minimum threshold.
It’s also worth pointing out, since people on the right always get nailed for cites to any remotely right-wing organization, that ‘Citizens for Tax Justice’ is a an organization whose sole purpose is to increase the progressivity of the tax code, and therefore, they have a major axe to grind. Maybe that’s why they left out the lump-sum payment, which made up 1/4 of the entire cost of the bill?
Also, focusing on the absolute dollar amounts, rather than on the percentage of taxes cut, neglects to consider the utility of money. By focusing on dollar amounts, you can spin a 1% across-the-board tax cut for all as being a ‘cut for the rich’ because 1% of a much larger income is a bigger number. But at the same time, everyone gets to keep 1% more of their income. It’s a matter of what you choose to focus on.
Also, you might want to look at this 2002 update by the CTJ, which does seem to include the one-time rebate. While they still show that the rich would eventually get up to 54% of the tax cut, notice the graph of distribution over time, which shows that in 2001, the cut was skewed to the bottom end, with the top 1% only getting 7.3% of the tax cut given in 2001. That’s total consistent with a Keynesian approach to this - in the recession year, the taxes were front-loaded towards the lower income groups to encourage spending.
And while I tend to stay away from partisan cites and rarely quote Heritage or Cato or other similar organizations, since you’ve cited CTJ, I’ll have to counter with this report from the Heritage Foundation. The reason it’s important to add this perspective is because it appears that the CTJ uses ‘static scoring’, which is to just take the income of the rich, subtract the tax cut, and use that as the cost of the tax. It doesn’t include things like reduction in tax avoidance activity or reduction in deadweight losses.
See? It all depends on how you spin the data. If you look at absolute dollar amounts you can make the case in one direction, but if you look at shares of total taxes paid, you can make the other.
The fact is, any tax cut of substantial size MUST give the rich more in absolute dollars, simply because the poor pay very little in tax in the first place. Unless you’re willing to cut payroll taxes and turn social security into a welfare program, that’s just reality. Also as a matter of fact, the 2001 tax cut went out of its way to make sure that hundreds of billions of dollars in cheques were sent out to the lower and middle classes, regardless of how much tax they actually paid.
Finally, to get away from old projections and to look at the actual cost of the tax cuts based on what actually happened in the 2000’s, let’s look at the relatively non-partisan Tax Policy Center analysis of the cost of the Bush tax cuts over the next ten years, and the cost of the Obama administration’s alternative of extending the tax cuts for all but those making more than $250,000.
What you find is that the cost of extending all tax cuts would be 3.7 trillion dollars over the next decade. But the vast bulk of the cuts benefits those making less than $250,000, and Obama’s alternative proposal only cuts 680 billion out of the 3.7 trillion, leaving a cost of 3 trillion dollars. This certainly suggests that earlier claims that the rich would get over 40% of the total benefit of the tax cuts did not come true.
But this is getting a bit off topic, because even I said that the 2003 tax cuts WERE mostly ‘supply-side’. The 2001 tax cuts were mostly not, and were explicitly sold as Keynesian stimulus. There certainly was a mix of Keynesian and supply side factors in the tax cuts, which I said from the very beginning, but the fact is that in 2001 during the recession, the Bush administration injected $270 billion dollars directly into the demand side by sending cheques to every taxpayer for $300 and $600, in addition to making a number of rate cuts for every taxpayer. And this was done explicitly as a Keynesian stimulus.
Sam, what is your birthday? I’m going to take up a collection, buy you a Paul Krugman dartboard.
From the cite you yourself used:
[QUOTE=Bradley W Bateman]
The supply-side basis of his tax cuts remained a rhetorical sop for his supporters, but the actual intent …
[/QUOTE]
By your own cited source, the cuts were NOT sold as Keynesian stimulus but as supply-side cuts.
[QUOTE=Great Antibob]
But calling the 2001 cuts Keynesian is not apt. A stimulus is supposed to be temporary.
[/QUOTE]
And it was…the stimulus checks were sent out and supposedly stimulated the economy. It didn’t seem to work very well, IIRC, but it did happen.
I think that we are talking past each other, and Sam has done a better job of explaining it than I could. You are talking about one aspect of what Bush was doing and trying to focus on just that one part, and I’m talking about the over all rationale for the thing, which, to me, was certainly Keynesian-esque.
And were economists who believe in supply side touting that this stimulus was in line with their philosophy? To me it looks like standard political compromise…something for everyone, or at least enough to get the votes. ISTM that the main thrust of the tax cuts in 2001 were designed to stimulate the economy through direct payments, and that there was only a nod towards ‘supply side’ economics…enough to get the Republicans on board. The 2003 tax cuts…now that was substantially different, and I think the roles were reversed there.
And I see it exactly the opposite…trying to put ‘supply side’ lipstick on what was basically a Keynesian stimulus and call it a Republican. 
YMMV, and I admit that I’m no economics theorist, nor do I play one on the SDMB. I have friends who are, though, and they generally agree with Sam on this, though most of them think it was a cluster fuck…as they think the tax cuts in 2003 were a cluster fuck, and as they think the stimulus in 2009 was a cluster fuck.
-XT
[QUOTE=Great Antibob]
By your own cited source, the cuts were NOT sold as Keynesian stimulus but as supply-side cuts.
[/QUOTE]
I seriously don’t understand what you are getting at here. Of COURSE they were sold that way…otherwise the Republicans probably wouldn’t have voted for them as they did. If Bush et al had come out and said ‘well, we want basically a Keynesian stimulus but we’ll toss in a few ‘supply side’ bones…m’kay?’ what do you suppose the Republicans voting on the thing would have done?
-XT