We’re getting to the end of Brian Riedl’s Ten Myths. Here’s Myth 9
“Myth #9: The Bush tax cuts have not helped the economy.
Fact: The economy responded strongly to the 2003 tax cuts.”
There are a few problems with this.
1. The annualized percentage growth in real GDP per capita from 2002 to 2006 was 2.28%. From 1992 to 2000, it was 2.49%. From 1976 to 1980, it was 2.14%. Thus, in GW’s best three years so far, growth rates exceeded those under Carter’s entire term by a little bit, and were less than under Clinton’s entire term. I never saw a Republican refer to Carter’s performance as strong before. (Carter inherited real problems. Real GDP per capita had actually dropped a few times in the 1970s, there was an oil embargo, and the Bretton Woods system had fallen apart a few years earlier.) GW has to keep up the performance of the past few years just to stay ahead of him. (Real GDP per capita data from BEA NIPA Table 7.1)
2. As I noted on my post on Myth 8, one could easily argue that the tax cuts in 2001 were of greater magnitude than the tax cuts of 2003. After all, from 2000 to 2001, the tax rate on low income earners dropped by one third (from 15% to 10%), the tax rate on the top bracket dropped from 39.6% to 39.1%, and there was the $300 rebate. In 2002, the highest tax rate dropped again, to 38.6%. In 2003, the tax cut took the form of a reduction in top rates from 38.6% to 35%. Why would the tax cuts of 2003 have a big effect, but not the tax cut of 2002, or the (arguably) larger tax cut of 2001?
3. The economy tends to slowly rise no matter what inane policies are put in place by the folks in charge. The surprise is not that the economy reacted after 2003. The surprise is that things looked moribund for so long from 2001 to 2003.
4. Monetary policy. Long time readers may recall I had a post on the Federal Reserve’s policy, by President. I noted that GW’s term is one of only three (the other two being LBJ and Reagan) since 1950 which saw the Federal Reserve increase real M1 per capita. This fairly unusual amount of monetary stimulus makes it even more surprising that the economy looked moribund from 2001 to 2003.
As always, if anyone wants my spreadsheets drop me a line.
Clarification… When I note “real GDP per capita from 2002 to 2006”, I assume the effect began in 2003. Thus, I take into account the change from 2002 (presumably a bad year) to 2003 (presumably the good year). Thus, I annualize the growth rate from from 2002 to 2003. Similarly, for Clinton’s term, I look at the period from 1992 to 2000, and for Carter, from 1976 to 1980. I should note… using only data from 2003 to 2006 (i.e., assuming the 2003 tax cuts only affected 2004, 2005, and 2006), real growth per capita is 2.54%. But at some point, we are cherry-picking, and GW doesn’t so good when you can cherry-pick other Presidents too. For instance, 1998, 1999, and 2000, the years that arguably best demonstrated the Clinton policy, as by then it had the most chance to kick in, had real gdp per capita growth rates of 2.92%. Carter’s 3 best years occurred before the whole Iran mess… 3.34%! It would be nice if any time between now and the end of GW’s term we see a 3 year stretch of 3.34% annualized growth in real GDP per capita, but nobody expects it.
Update… Corrected 1st sentence in point number 1.