An Obvious, Overdue Point

Finally someone in the mainstream press has made this point. Jonathan Weisman of the Washington Post writes:

When President Bill Clinton raised taxes in 1993, the unemployment rate dropped, from 6.9 to 6.1 percent, and kept falling each of the next seven years. When President Bush cut taxes in 2001, the unemployment rate rose, from 4.7 to 5.8 percent, then drifted to 6 percent last year when taxes were cut again.

It has become conventional wisdom in Washington that rising tax burdens crush labor markets. Bush castigated his political opponents last week for “that old policy of tax and spend” that would be “the enemy of job creation.”

Yet an examination of historical tax levels and unemployment rates reveals no obvious correlation.

Okay, it’s a somewhat specious argument – the correct thought experiment to run is really to compare what actually happened to unemployment to what would have happened in the absence of tax policy changes – but at least this simple correlation highlights the fact that the efficacy of tax cuts to help the labor market is not obvious.