Debunking the Bush Administration's Economic SpinIn an Administration that has perfected the art of doublespeak, perhaps the biggest misrepresentation of all is the contention that their aggressive tax cuts were ever likely to promote job creation in America.
Successful businesses create new jobs in response to actual or anticipated increased demand for their services, not lower taxes. Notice that I specifically used the word "businesses" in the previous sentence – and notice that the Bush Administration's approach was to cut individual, not corporate, tax rates.
Bush Administration apologists claim that since small businesses generate a large percentage of new jobs, it was appropriate to cut individual tax rates. What they neglect to mention is that most small businesses (that is, firms that employ anywhere from 2-100 workers) are incorporated – and hence file corporate returns. If the Bush Administration were truly interested in efficiently creating jobs, they might have focused instead on creating a series of targeted investment credits (in vitally important sectors like alternative energy) that would have allowed corporations to retain both profits and workers.
Additionally, as economists like Robert Reich have pointed out, one of the key components of the recent recession was industrial overcapacity – a natural byproduct of the heady but overheated final years of the Clinton-era economic expansion. The clear solution to industrial overcapacity is to grow demand so that it better matches supply. This might have been more efficiently accomplished through a measured stimulus package like the one proposed by the Democratic Congressional Leadership in January 2003. Such a package might have incorporated a payroll tax holiday that would have increased the meaningful purchasing power of American workers, as well as provisions that would have increased the ability of businesses to more quickly write off any necessary capital investments, like a moderate expansion of Section 179 depreciation (to $50,000 per year, as stipulated in the original Democratic proposal). Coupled to the boost that lower interest rates were providing, and a consensus expectation that a recovery was due to begin by late 2002 even if the Federal Government had done nothing, a sensible stimulus package is very likely to have effected as equally robust a recovery as the Bush White House now claims as a result of their deficit-exploding cuts in individual and dividend tax rates (and a substantially higher expansion of the Section 179 business depreciation deduction).
In many economists' opinion, the Bush tax cuts were specifically designed to transfer wealth from the United States Treasury to a specific class of Americans who had profited enormously during the Clinton era. These cuts were never likely to have a significant impact on job creation – again, as opposed to targeted corporate investment credits, or an across-the-board, short-term, payroll tax reduction. They were clearly never intended as a remedy for the loss of American white collar and manufacturing jobs to India and other third world countries, through the phenomenon now described as outsourcing. Now that the nation is running record deficits, there is that much less revenue available to adjust the tax code in a future effort to actually stimulate job creation as well as retain existing American jobs. And eventually, the continued loss of these good paying jobs will lead to softer consumer demand, a return to recession, lower corporate profits, and quite probably, the outsourcing of even more good paying jobs. It is a vicious cycle.
To add insult to injury, Bush Administration defenders further argue that in a nation where 90 million Americans are shareholders, the paper profits accrued in the rebound of the DOW and the NASDAQ in 2003 are a more accurate indicator of the success of these policies than the creation or retention of high-paying jobs. Putting aside the dubious wisdom of anyone placing their faith in the value of paper profits, this approach is nothing less than an attempt to employ a class struggle argument – by championing the interests of upper middle class and wealthy shareholders, and stock option-compensated corporate management, over the interests of the struggling middle class and working poor.
Both our American spirit and the social contract demand that the economic well-being of the least of us be of more than passing concern to the most fortunate of us. While we may never see a day when poverty is eradicated, it behooves us to do everything in our power to bar the arrival of a day when long-term structural unemployment has become a reality – and tens of millions of Americans have little, if any, hope of materially improving their lives. It is my fear that were that day to ever arrive, not only would this nation cease to be a land of opportunity, but that its citizens, then massed behind armies of competing economic interests, would also cease to see each other as fellow Americans.
Matthew Carnicelli © 2004. All rights reserved.
Originally published February 24, 2004.