Sunday, July 8, 2007

Defending the Bush Tax Cuts

I continue to remain in the slightly less than 30% or so that still continues to support the President. I do it begrudgingly. I was not at all happy with the immigration bill, and of course, I haven't been impressed by the direction of the war in Iraq. I continue to support him because he stilll understands the nature of the enemy we face in a way that most Democrats don't. From the Patriot Act to enhanced interrogations, to Gitmo, the President has put in place the tools necessary to keep us safe even while facing an onslaught of criticism from the other side. The reality is that most of Bush's accomplishments came in his first term, and unless there is a miraculous recovery in Iraq he will go down as a failing President.

That said, there is one issue that the historians will agree on, and that is his tax cuts. I find almost all of the criticism of his tax cuts and economic policy to be totally infuriating. It is done mostly by people that either don't understand economics or figure the public at large won't.

Let's set the historical context. In March of 2000, Alan Greenspan surprised many and began a series of fed fund rate increases. The first increase burst the perverbial bubble in the internet craze. The market crashed and by the time it was over there was roughly three trillion in paper losses by the end of the year.

The technical definition of a recession
is two quarters of declining GDP however it goes without saying that the nexus for the recession happened with this initial and subsequent rate increases. The events of September 11th, 2001 have been well documented of course, however their effect on the economy aren't nearly as well known. The three months following October, November, and December 2001, the U.S. economy lost roughly 1 million jobs.
To put that in perspective the economy needs to gain about 150,000 new jobs monthly to stay even.

Within months of this, it was revealed that Enron was "cooking the books" in reporting their profits for years, in what turned out to be one of the most complicated ponzi schemes in the history of business. This opened the floodgates and within months and later years dozens of companies began to admit that they also had cooked the books from WorldCom to Global Crossings, the integrity of the filing system was now in question.

Make no mistake, anyone of these events on its own could have crashed the economy. The three together should have caused the economic version of the Perfect Storm.

So, what kept the U.S. economy of the early 2000's from making the economy of the U.S. of the 1930's from looking good. It was of course the Bush tax cuts. The thing that bothers me about the attacks on the Bush tax cuts, is that everything I need to know to defend them I learned from Macroeconomics 101 as a junior in high school. I remember six weeks into the class my teacher telling us that at this point we knew more about economics than 90% of the country. Maybe that is why Bush opponents have been able to make an arguement against logic.

In my third week, I learned that there was two ways for the government to stimulate the economy: lower interest rates and lower taxes. Both of these elements were implemented in response to the recession and wouldn't you know it the economy is strong and has been since 2003. GDP continues to grow at about 3% annually, inflation continues to be around 2%, interest rates continue to be low, and unemployment is a healthy 4.5%. As Jack Ross once said in A Few Good Men, "those are the facts and they are undisputable"

So, why then do opponents continue to downplay the economy and the tax cuts that lead to it. Of course, in the last few years it has been criticism by ommission. You aren't going to find to many newspapers or broadcast news organization say much about the economy these days. In years, past there was all sorts of criticism. For a while it was the jobless recovery, then the deficit, and after a while Bush opponents scoured the economic numbers to find anything negative. At one point, the Democrats were bemoaning the small savings rate, as if the President could possibly affect how much people saved, or more importantly, savings, in a vacuum, is any measure of economic performance. In another episode, Democrats bemoaned stagflating wages, another meaningless number since most people get paid in something besides wages. (I, for instance, work in straight commission, and between bonuses, overtime, stock options, and commission for people like me, wages have become an outdated tool) Bush opponents have used any number they could find to convince the public not to believe what is obvious and in front of them.

That's the thing about economics. It is filled with numbers and statistics, and someone can find a number to back up whatever assertion they want. One can pray on a naive public to tell any story they want. For instance, how many times have I heard a Democrat proclaim that during the Clinton years we had a surplus while we now have a deficit. None of them of course ever say the consequences of having too great a deficit, which is high interest rates, which of course we don't have. Furthermore, I again go back to my first MacroEconomics class. I learned that during times of economic boom, the 1990's, we have surpluses and during times of recession, the early 2000's, we have deficits. These, I learned, are not only natural but necessary. Also, I learned that surprise, surpries, during times of war countries also run up deficits.

How many Democrats uttered the words, "tax cuts for the rich". Of course, this is an outright lie. Every tax bracket, including but not exclusively the rich, lowered their rate. The Democrats proclaimed that in dollar terms the rich got the overwhelming piece of the tax cuts. Well, in the words of any third grader, duh. The rich make the overwhelming amount of money and pay the overwhelming amount of the taxes. 3% of 50,000 dollars is a lot less than 3% of 1 million dollars. Of course, the rich got the biggest part of the tax cuts, their pool is by far larger. A millionaire pays more in taxes than most people make in income. They played the traditional class warfare, pitting the wealthy Republicans versus the middle class of the Democrats. Well as Gregg Jackson pointed out in Conservative Comebacks to Liberal Lies
targeted tax cuts, the kind the Democrats bemoaned, are nothing more than a form of communism, where the poor are propped up on the backs of the wealthy. Furthermore, logic tells us that it is the wealthy, not the middle class, that creates jobs. A three percent tax cut for someone making fifty thousand may put more money in their pockets, but they won't hire any new workers as a result of it. A millionaire on the other hand, is something totally different.

In the last five years, fatalist everywhere have bemoaned the upcoming doom of the economy, from gas prices to hurricanes, and now the Sub prime crisis we seem to always be just around the corner from a collapse. Despite all of these calls the economy motors ahead. The June jobs numbers were once again surprisingly strong and we are well on our way to another year where the economy grows about 2 million new jobs. This will be the fourth year in a row (2004, 2005, 2006, and 2007) that this will happen.

What bothers me most is that the same people criticizing Bush's record on the economy also point to the economy is the single best accomplishment of Bill Clinton. Well, to those, I have two words, Calvin Coolidge,, he also presided over a wonderful economy fueled by speculators that crashed right after he left office, and no one considers him a great President these days.Bush made a catalyst, the tax cuts, for the boom that followed. His economy wasn't propped up by the mirage of the internet boom, and yet those same people consider Clinton's record on the economy excellent, while Bush's is consdered a failure, and they all do it, either because they don't understand economics, or hope the public at large doesn't.

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