The Washington Post on Tax Cuts
Jonathan Weisman has an article entitled “President Says $550 Billion Reduction Would Create More Jobs“. Here’s a nice bit of reasoning by the president:
“Some members of Congress support tax relief but say my proposal is too big,” Bush said in his Saturday radio address. “Since they already agree that tax relief creates jobs, it doesn’t make sense to provide less tax relief and, therefore, create fewer jobs.”
If you have the sniffles, an ounce of Nyquil will make you feel somewhat better. The only logical conclusion is to drink the whole bottle. The article continues directly:
But few economists would argue that tax policy is so straightforward. Taken to its extreme, Joel Slemrod, a tax economist at the University of Michigan, said that Bush’s argument would support eliminating taxes altogether for the sake of job creation.
“Logically, the statement that more tax cuts are better is certainly wrong,” Slemrod said.
Finally, here are the president’s numbers:
Advisers calculated in February that the president’s full, $726 billion package would create 1.4 million jobs through 2004. The House’s trimmed down, $550 billion package would create just over a million jobs, by the White House’s calculation. A $350 billion package would create 425,000 fewer jobs, White House spokesman Ari Fleischer told reporters last week.
Doing a little math, these numbers translate into per-job-created costs of $518,000, $550,000, and $609,000 for the smallest tax cut. Note how the numbers assume increasing returns (i.e., lower cost-per-job) to tax cuts? Most things in economics are subject to diminishing returns (it’s such a common phenomenon that we call it The Law of Diminishing Returns).