Big Dogs Weblog

Someone Can’t Face Reality

by Big Dog on Dec 2, 2011 at 05:23 Political

I received a message via my contact page from someone using the name L-Dog. The message came from an Alaska.gov server. More specifically, it came from the Department of Administration (or through their server, anyway). This is the message I received:

So if tax cuts create jobs, where are they. We have 7 or so years of the bush [sic] tax cuts and no job growth. So stop lying.

A lie, by definition, is a deliberate attempt to deceive. Since I did no such thing, then it is not a lie. But let us explore.

The Bush tax cuts took place in 2003 and went into full force in 2004 so yes, it has been about 7 years though there were earlier tax cuts. After the Bush tax cuts, 5 million jobs were created and the revenue to the Treasury increased. This is not to say things were great because Bush was a big spender. He and Congress spent far more than we took in though now those numbers pale in comparison to Obama.

The linked chart shows that from about 2000 to 2003 revenue decreased. There are a number of reasons including 9/11 and a recession. The Clinton tech bubble was bursting as well and the Federal Reserve raised interest rates 6 times from 1999-2000. From 2003 to 2007 revenues increased as a result of the tax cuts. In 2007 Democrats took control of Congress and revenues again began to decrease. We were also heading into another recession. It is also important to note that the first tax cuts of 2001 were to be phased in over several years and the economy and job production lagged in the early years.

Heritage published a report about the tax cuts and this, in part, is what that organization had to say:

In 2003, capital gains tax rates were reduced. Rather than expand by 36% as the Congressional Budget Office projected before the tax cut, capital gains revenues more than doubled to $103 billion.

The CBO incorrectly calculated that the post-March 2003 tax cuts would lower 2006 revenues by $75 billion. Revenues for 2006 came in $47 billion above the pre-tax cut baseline.

Here’s what else happened after the 2003 tax cuts lowered the rates on income, capital gains and dividend taxes:

• GDP grew at an annual rate of just 1.7% in the six quarters before the 2003 tax cuts. In the six quarters following the tax cuts, the growth rate was 4.1%.
• The S&P 500 dropped 18% in the six quarters before the 2003 tax cuts but increased by 32% over the next six quarters.
• The economy lost 267,000 jobs in the six quarters before the 2003 tax cuts. In the next six quarters, it added 307,000 jobs, followed by 5 million jobs in the next seven quarters.

The timing of the lower tax rates coincides almost exactly with the stark acceleration in the economy. Nor was this experience unique. The famous Clinton economic boom began when Congress passed legislation cutting spending and cutting the capital gains tax rate.

In late 2007 the economy began to cool. By 2008, it entered a recession. The housing bubble burst, precipitating a financial crisis. But after 50 months of unimpeded growth, it is ludicrous to insist that the tax cuts caused the recession, let alone the global financial meltdown. Even after the Fannie and Freddie Mac-induced bust, there were still one million net jobs created during the Bush years.

So L-Dog of Alaska, the Bush tax cuts did indeed create jobs. The net gain was 1 million after a 5 million increase that was mostly wiped out by the government (read Democrat) induced trauma known as Fannie and Freddie.

Revenue increased, jobs were produced and the unemployment rate was in the 4-6 range. This happened despite a massive blow we took on 9/11.

Tax cuts, long term ones, create jobs because the private sector employers (government DOES NOT create jobs) know what to expect and are able to run their businesses accordingly. They can hire because they know what their tax burden will be. Uncertainty leads them to stop hiring and take a wait and see approach. Ronald Reagan cut taxes and he had tremendous job growth as well as increased revenue to the government.

If we could get government to stop spending what they take and then some we could get our house in order.

So, if tax cuts do not produce jobs why is Barack Obama running around claiming to be a tax cutter (he has raised them, not cut them)? Why did Democrats fight to keep the Bush tax cuts last year? They cited the problems with increasing taxes in a bad economy and how it would harm job growth so if tax cuts do not equal jobs why would they fight for the tax cuts enacted by a man they absolutely hated? Additionally, why did the Congress cut payroll taxes last year (the Social Security tax) if they thought it would not help.

A lot of things are working against any tax cuts and a major part is the out of control spending and the Keynesian economic policies that Obama embraces. You can’t keep spending money we don’t have to cure a spending problem. Tax cuts with discipline in DC will solve the problems.

When producers are taxed more it leaves them less capital to run their businesses and that means they can’t hire. When the tax situation is uncertain they are afraid to act.

So L-Dog, I hope this clears it up for you. I won’t call you a liar, just misinformed.

Cave canem!
Never surrender, never submit.

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Tags: alaska, Bush, department of administration, jobs, l-dog, reagan, revenue, tax cuts