Our guest blogger is James Kvaal, Senior Fellow at the Center for American Progress Action Fund.
House Republicans claimed yesterday that their alternative economic recovery plan –- a Bush-like package of tax cuts — would create 6.2 million jobs. As Rep. John Boehner (R-OH) said during a press conference:
We have an analysis by the president’s senior economic adviser who also shows that tax cuts actually provide more immediate relief and more jobs than spending, so you get more — a bigger bang for the buck. Well, using the methods and economic models developed by the president’s top adviser — and when those are applied to our Republican plan, it shows the Republican plan could create as many as 6.2 million jobs over the next two years.
House Republicans proceeded to all vote against President Barack Obama’s American Recovery and Reinvestment Act. But in claiming support from Obama economic advisor Christina Romer, they misapplied her past work and ignored her more recent and relevant work.
The Republican statement cites a 2007 paper by Romer on the economic benefits of tax cuts. But as noted across the blogosphere, Romer’s conclusion was that the economic environment complicates the assessment of policy changes, not that tax cuts are the most effective way to create jobs:
What Romer and Romer’s study (and their earlier work on monetary policy) shows is not that tax cuts are uniquely effective, but rather that failing to consider the reasons for policy changes leads to underestimates of the effects of all types of stimulus.
A more recent paper Romer coauthored concluded that government investment create more jobs than tax cuts. As this table that Romer and Jared Bernstein compiled shows, government spending has a stronger multiplier effect, and is therefore stronger stimulus:
As Reagan advisor Martin Feldstein wrote, “While good tax policy can contribute to ending the recession, the heavy lifting will have to be done by increased government spending.” Mark Zandi, chief economist at Moody’s Economy.com recently explained why: though tax cuts act more quickly, they “do not have the same economic bang for the buck as increased government spending, as households will save some of the tax cuts or use them to repay debt, and purchase imported goods.”