Derailing the Myth that Supply-Side Tax Cut Policies Stimulate Job Growth

Sep 8, 2010   //   Economy

Earlier this summer Mark Haynes (Co-Host of CNBC’s Squawk on the Street) took on a guest who claimed that letting the Bush tax cuts expire for the wealthiest of Americans would be detrimental to jobs growth.  Mark used job creation statistics to derail partisan-driven soundbites and then referred to the guest’s claim as being myth.  I sent the attached to Squawk on the Street complimenting Mark for using an information-based approach.  To assure clarity, the use of the term ‘supply-side tax cuts’ in the title refers to a tax cut policy where the benefit is largest to the wealthiest in the belief that it would lead to capital accumulation and increased investment that would stimulate economic growth.

August 4, 2010

I want to compliment Mark for using outcomes data on tax cuts and job growth in challenging a guest (last week I believe) who was claiming that letting the tax cuts expire for the wealthy would be detrimental to jobs growth.   Mark took on partisan sound bites by pointing out that job growth was considerably stronger in the 1990’s than it was during the 2000’s.

We have had 30 years to look at tax policy and its effect on the economy.  There have been two supply-side tax cut periods (1981-1992, and 2001-2008) and an intervening period where supply-side policies were reversed (1993-2000).  The following outcomes were observed:

  • The 1990s represented the longest period of economic growth in US history
  • Both supply-side periods drove up gross debt that outran our economic growth whereas the non-supply period reduced debt and produced surpluses
  • The non-supply side period outperformed both supply-side periods in real investment, jobs growth, GDP growth, average annual median income, and wage levels.
  • The outcomes realized in 2000 included the largest one year paydown of debt in US history ($223B), balancing the budget without borrowing from the Medicare Trust Fund, cutting in half the projected public debt for 2001 from that estimated in 1993, giving us the potential to pay down all public debt by 2009, producing the lowest federal income tax (as a % of income) for middle America in 30 years, realizing the lowest level of federal spending (as a share of the economy) since 1966, and producing the smallest federal civilian workforce in 40 years (20% of this workforce was cut between 1993-2000, 377,000 jobs).

I remain baffled by the continuing arguments that the supply-side tax cuts benefit the economy and I would like to see more of what Mark did – challenge guests who do not want to let these tax cuts for the wealthy expire explain their position in light of outcomes we have observed.

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