Serious Implications

Not if recent history is any indication.

When the Bush and the GOP Congress were in power they cut taxes and increased spending. Now, they are campaigning on promises to cut spending and cut taxes. Would they do it? Can we trust America’s future to Larry Kudlow and the GOP? Here’s economist Bruce Bartlett, former economic advisor to Ronald Reagan:

But in a larger sense, the extremely poor economic performance of the Bush years really set the stage for the current recession. This is apparent when we compare Bush’s two terms to Bill Clinton’s eight years. Since both took office close to a business cycle trough and left office close to a cyclical peak, this is a reasonable comparison.

Throughout the Bush years, many conservative economists, including CNBC’s Larry Kudlow, extravagantly extolled Bush’s economic policies. As late as December 21, 2007, after the recession already began, he wrote in National Review: “the Goldilocks economy is outperforming all expectations.” In a column on May 2, 2008, almost six months into the recession, Kudlow praised Bush for having prevented a recession.

But the truth was always that the economy performed very, very badly under Bush, and the best efforts of his cheerleaders cannot change that fact because the data don’t lie. Consider these comparisons between Bush and Clinton:

• Between the fourth quarter of 1992 and the fourth quarter of 2000, real GDP grew 34.7 percent. Between the fourth quarter of 2000 and the fourth quarter of 2008, it grew 15.9 percent, less than half as much.

• Between the fourth quarter of 1992 and the fourth quarter of 2000, real gross private domestic investment almost doubled. By the fourth quarter of 2008, real investment was 6.5 percent lower than it was when Bush was elected.

• Between December 1992 and December 2000, payroll employment increased by more than 23 million jobs, an increase of 21.1 percent. Between December 2000 and December 2008, it rose by a little more than 2.5 million, an increase of 1.9 percent. In short, about 10 percent as many jobs were created on Bush’s watch as were created on Clinton’s.

• During the Bush years, conservative economists often dismissed the dismal performance of the economy by pointing to a rising stock market. But the stock market was lackluster during the Bush years, especially compared to the previous eight. Between December 1992 and December 2000, the S&P 500 Index more than doubled. Between December 2000 and December 2008, it fell 34 percent. People would have been better off putting all their investments into cash under a mattress the day Bush took office.

• Finally, conservatives have an absurdly unjustified view that Republicans have a better record on federal finances. It is well-known that Clinton left office with a budget surplus and Bush left with the largest deficit in history. Less well-known is Clinton’s cutting of spending on his watch, reducing federal outlays from 22.1 percent of GDP to 18.4 percent of GDP. Bush, by contrast, increased spending to 20.9 percent of GDP. Clinton abolished a federal entitlement program, Welfare, for the first time in American history, while Bush established a new one for prescription drugs.

The GOP is flooding the media with a lot of rhetoric that is not supported by historic records and real data. The Democrats have made their fair share of mistakes, but Americans best be careful as Novemer elections approach. There’s a lot of snake oil peddlers out there.

“If you don’t pay the workers enough money, they can’t buy the cars.” – Henry Ford

The website Inequality.org has a summary of income trends among American households from 1947 to 2005. The following two graphs illustrate the rise and fall of the middle class since World War II. The first graph shows income growth according to quintile (20%) groups. Note the lowest 20% of households (far left) had the largest income growth from 1947 to 1979. The richest group represented by the bar on the far right had the lowest income growth, although it was still substantial. It was a time of “lifting all boats.”

The second graph shows the income trends from 1979 to 2005. It’s a much different picture with the richest group seeing the highest income growth. This graph illustrates the supply-side economic theory that has been prominent since Ronald Reagan was president. The “trickle down” economics did not in fact reach the lower wage earning groups. It created faster income growth for the rich, stagnation or even wage loss for middle and lower end wage earners.

The Republicans are trying to paint Obama as a “socialist” or “redistributionist” because he proposes to roll back the Bush Tax cuts that disproportionately helped the rich, whose earnings were growing faster than anybody else’s.

It’s time to rebalance the economy.

An earlier version of this article was posted on October 30, 2008.

“We need to make the Bush tax cuts permanent.” - John McCain

He originally voted against Bush’s tax cuts in 2001 and 2003, calling them fiscally irresponsible. Now he’s not only for them, he wants to make them permanent, according to this Bloomberg report. By favoring Bush’s tax cuts, McCain’s campaign money problems are probably behind him. Here’s why:

The Center on Budget and Policy Priorities (CBPP) has this article that analyzes what income groups benefit most from making the Bush tax cuts last for another decade. The top 1-percent of income earners would capture $1.1 Trillion. The top 1-percent income group would receive 31% of the total tax cut benefit. The top 20-percent income group would receive 74-percent of the tax cut. As for the others:

Lowest 20-percent: 0% of tax cut benefit
Second 20-percent: 4%
Third 20-percent: 8%
Fourth 20-percent: 14%.

The Bloomberg article linked above discusses the unlikely prospects for the tax cuts being offset by spending cuts or other additional revenues. The odds look slim, which means going deeper into debt. McCain has a history of fighting deficits. Did he “strike a bargain with the devil?” Is that the price of securing the Republican nomination?

Not to mention McCain’s 100-year committment to Iraq. Did he have to commit to that to get the Bush loyalists behind him?

This year we’re likely to hear from Republican supply-siders about how high the taxes are for wealthy Americans. They’ll claim that taxes will need further cutting to keep the economy growing. They like to quote high percentages of taxes paid by top earners. The facts show, however, that while percentages of total tax payments have gone up, the top 1% of wealthy Americans have enjoyed tax cuts in terms of real dollar amounts.

These tax cuts have cost the current and future U.S. taxpayers roughly $500 billion a year from 2001 to present, sending the National Debt soaring from $5.6 trillion in 2000 to over $9 trillion today. That means the government has borrowed money to pay for the Bush tax cuts. That amounts to socialism for the rich, and a real problem for the rest of us and our kids.

The graph below shows tax payments adjusted for inflation in constant 2004 dollar values. Notice that total revenues decreased substantially in 2004 compared to 2000. The share of income tax paid by the richest 1% was higher in 2004 compared to 2000 but the amount they paid was actually less than in 2000.

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Source: Center on Budget and Policy Priorities

The Bush tax cuts have, in fact, been regressive, meaning that they have led to greater after-tax income inequality. The rich get richer (and politically more powerful) and the rest of us fall behind.

There’s more about this in an excellent CBPP paper here.

Regardless of what they say, the Bush Administration and their tribe (including Mitt Romney) has and will continue to use government appropriations and tax policies to loot the U.S. Treasury and make their people wealthier. That’s their record.