The Rest of The Story

Reader RN alerted me to a recent press release by the Bush administration touting the fantastic job growth following the 2003 Bush tax cuts:

“The American economy has created 4.4 million new jobs and the unemployment rate has fallen to 5.0% — well below the historical average — since the President signed the Jobs and Growth bill into law in May of 2003. It is vital that we keep taxes low on individuals and on capital gains and dividends and resist tax hikes that could undermine the path of economic growth.”

They even included this fancy graph:

Wow! A compelling case that Bush’s tax cuts did work magic! Or so it would seem — if the first tax cuts were in 2003. In fact, the tax cuts started in 2001, though 2001-2003 data are strangely omitted from the graph.

Looking back on the 2001 tax cuts, the 2002 Economic Report of The President (pdf, see page 44) claimed that

The President laid a strong foundation for growth in 2001 with the Economic Growth and Tax Relief Reconciliation Act. This package provides a powerful stimulus for future growth, with reductions in marginal tax rates that improve incentives …

The first reduction in marginal tax rates was effective for 2001 and was reflected in lower withholding during the second half of the year. In addition, the new 10 percent tax rate bracket, carved out of the beginning of the 15 percent rate bracket, was reflected in rebate checks totaling $36 billion, which were mailed to 85 million taxpayers during the second half. The timing of these reductions in withholding and rebates proved propitious: they added significant economic stimulus by boosting purchasing power in the hands of consumers during a period of sluggish economic activity. The 2001 tax rate reductions were just the first step in a series of income tax rate reductions to be phased in by 2006…

How did that one work out? Let’s take a quick look at those omitted years:

Only in late 2004 were we back to the 2001 levels of employment. Of course, the population had grown from 285.1 million to 294 million over that same period. In fact over the same period cited in the press release and featured in the administration’s chart, mid-2003 to November 2005, the population increased from 290.8 million to about 297.8 million (the working-age population grows at about 1.2% per year, so roughly 130k new jobs a month are needed just to stay in place).

The administration is trumpeting 4.4 million new jobs created from May 2003 to November 2005. That’s 4.4 million jobs in 29 months, or about 152,000 per month — modestly above the level of job creation required just to keep up with population growth. For comparison, see the chart in this old post (or see below), which shows that the economy under Clinton rarely had job growth as low as 152,000 per month.

So, as it racks up massive deficits and sends the federal debt over $8 trillion, the Bush administration has managed to shift the economy from 2 years of negative job growth to 2.5 years of historically anemic (but positive nonetheless!) job growth. Time for a self-congratulatory press release indeed.


P.S. Here’s the chart of monthly job creation from the old post that I cited above: