Was the 2003 Tax Cut Responsible for the Recent Weak Employment Growth?

Lawrence Kudlow dons his clown suit as he pens an attack on certain GOP candidates for the White House – calling them hedgehogs:

Another impressive jobs report was released by the U.S. Department of Labor last Friday, but you didn’t hear anything about it from the big-three Republican candidates for president. They claim to support President Bush’s supply-side tax cuts, and say they will fight repeal should they be elected to the Oval Office. Yet neither Sen. McCain, nor former-Gov. Romney, nor former-Mayor Giuliani talks about the continued economic benefits of the sweeping tax cuts of 2003 … Just look at the evidence. Wall Street economist Michael Darda points out that real wages from increased job creation have climbed at twice the speed during this business cycle than in the first 66 months of the previous cycle. Boosted by service-sector job creation, nonfarm payrolls grew by 97,000 in February, with a net upward revision of 55,000 for the December and January reports. The median length, or duration, of unemployment fell 8 percentage points in the last year, while non-management wages increased 4.1 percent, almost twice the inflation rate.

Let’s definitely look at the evidence – starting with last month’s news on employment. An increase of only 97,000 is weak employment growth. But why is Kudlow presenting the payroll survey when he has argued that the household survey is the better measure? Could it be that employment per the household survey fell? Yes – the unemployment rate fell but that’s because the labor force participation rate fell. And don’t you love the fact that Kudlow is talking increases in the nominal value of “non-management wages”? In real terms, wages are only 0.5% higher than they were in July 2003. This is not the massive increase in real wages that Michael Darda and the man in the clown suit want to portray.

Conservative economist Andrew Samwick must pay more attention to what Kudlow’s colleague – Ramesh Ponnuru – has been doing than Kudlow as Senator McCain has bought into the free lunch supply-side nonsense that Kudlow is peddling. Andrew passes along a couple of questions from conservative economist Greg Mankiw:

1. If you think the 2001 and 2003 tax cuts increased revenue, why did you vote against them?

2. If you think tax cuts increase revenue, why advocate spending restraint? Can’t we pay for new spending programs with more tax cuts?

Andrew has a few questions of his own:

As Greg has announced that he’s an economic advisor to Governor Romney, I’ll be very curious to hear Romney’s response to a direct question about the circumstances under which he would be willing to increase taxes if he’s elected President. The question that I would like to have answered by any policy maker who voted for the tax cuts and believes that they have increased revenues is: Why did you make them so small?