Bush’s broken version of job creation


One rarely hears a candidate speech or policy pronouncement that does not include a promise to create jobs. George W. Bush recently expressed a commitment to do just that with a proposed $600 billion stimulus package. Strangely, the increased frequency of Bush’s job creation pronouncements coincides with the recent revelation that his job creation record over the last two years is far worse than any president of the last half century. The country has lost 67,000 jobs per year since he was elected, while every other president has averaged at least somewhere over zero jobs created per year (Bill Clinton averaged 230,000).

Economists disagree sharply as to which policies foster job creation, and what the effects of unemployment rates, interest rates, inflation and government deficits are on the economy. Individual economists’ observations of economic reality have a funny way of tracking their political ideology, and economic theory is sufficiently pliable to permit conservative economists to dance around inconvenient facts. For example, the conservative dogma that capital gains tax rate cuts help the economy and minimum wage increases hurt it persists, despite the fact that whenever Congress cuts capital gains tax rates, the economy slumps, and whenever Congress raises the minimum wage, it takes off. A wealth of empirical data suggest that, contrary to conservative myth, a monetary policy that allows for lower unemployment rates need not lead to high inflation, but none of this data has led to changes at the Fed.

Political debate about economic policy reproduces the academic battle of facially plausible narratives, albeit in dumbed-down form, with a similar disdain for facts and with a willingness to dramatically switch positions when ideology or campaign contributors demand it. However, while Republicans have traditionally promoted corporate welfare and tax cuts for the rich as “stimulus packages” to promote economic growth and job creation, even supporters of Bush’s proposal cannot bring themselves to pretend that his package will accomplish either goal. Hank Gutman, head of the federal tax policy practice at KPMG, has said that Bush’s tax cuts will produce no short-term increase in investment (the very thing a stimulus package is supposed to do), and experts at Goldman Sachs agree with him.

A closer look at one centerpiece of the package reveals what it is really about. Bush will cut taxes on dividends by at least 50 percent, which means at least 64 percent of the benefit will go to the wealthiest five percent of taxpayers. To put it another way, a person earning $1 million a year will receive tax savings of 2.5 percent of her income, while a person earning $40,000 to $50,000 per year would get back 0.17 percent. While conservatives (including Judge Richard Posner, who ought to know better) suggest that tax cuts for investors help everyone because of widespread stock ownership, the fact is that only a very small number own a substantial amount of stock, and an even smaller number can claim investment income as a major or primary income source. Bush accuses people who point this out of “class warfare.” While this appellation may make sense in a universe where people who disagree with the administration are traitors, and coming from the leader of a party who declared Nelson Mandela’s African National Congress a “terrorist organization,” it does not bear much scrutiny.

Class warfare is indeed taking place, as it always does in democratic politics and particularly in American politics. It seems clear who the aggressor is when Bush cuts a tax 14 times as much for the rich as for the poor and the middle class. While most people rightly accept the notion of progressive taxation, it is not clear that even flat-taxers could justify Bush’s proposal. While it is true that marginal rates increase by tax bracket, in economic reality it is unlikely they pay a higher portion of their income than the average American. Much of their income is in the form of capital gains, taxed at a lower rate. There are huge tax benefits for homeowners, in which class all but the most eccentric wealthy people fall. The wealthy are not taxed on the imputed income from their investments, even though those value increases give them access to loan capital and other economic opportunities that make them richer. Tax shelters and other devices make it easy for the wealthy to manage how much taxable income is realized, in ways that wage earners cannot. The list goes on.

It appears that Bush agrees with the Wall Street Journal editorial page, which finds it offensive that a few million “lucky duckies” — our poorest citizens — pay almost no taxes (apparently the 20 percent of their income they pay in payroll taxes doesn’t count). This is “compassionate conservatism” at work.