[Guest blogger and American Progress senior fellow Gene Sperling was President Clinton's National Economic Adviser.]
In the drive to make cutting taxes on dividend income a top national priority, the White House and their allies in Congress hope to obscure how regressive the cut is (in 2005 nearly 80% of the capital gains and dividend tax cuts went to those making over $200,000) with the self-assured assertions that it has: 1. lifted the stock market, 2. driven job and wage growth, and 3. helped the small investor.
All of these claims are off the mark — but I’m going to debunk each assertion one at a time over the next few posts.
Claim 1: The dividend tax cut has led to a stronger stock market. (A brief aside: the fact that a policy might increase the price of certain stocks, or even the stock market as a whole, does not end the discussion of whether or not it is a sound idea. One could provide a $1000 rebate and a toaster to every investor who purchased stock and probably drive up the market, but it would hardly increase our overall national economic well-being. The wisest economic policies focus on strengthening the underlying foundations for economic growth and productivity – not immediate market impacts).
A new study by economists at the Federal Reserve Board found no evidence that the dividend tax cut raised stock market prices as a whole. They didn’t even find much evidence that it raised the prices of dividend-paying stocks.
The authors of the Federal Reserve study, Gene Amromin, Paul Harrison, Nellie Liang and Steve Sharpe “fail[ed] to find much, if any, imprint of the dividend tax cut news on the value of the aggregate stock market.” For details on how the study worked, read my explanation here.
While Bush’s defenders still want to focus on what happened to the stock market after it was driven to recent lows in the lead up to war, the picture is a lot different when you look at stock performance since March, 2002. From March 2002 – when the ramifications of the horrors of September 11 were already built into the market and the recession had been over for several months – till today, the stock market has gone from 10,600 to 10,900, less than 1% growth per year.
From that vantage point, the Bush tax policies hardly seem like a rocking success for the stock market.
Here is a thought experiment: imagine if the stock market had only gone up from 10,600 in March 2002 to 10,900 in December 2005 under a Democratic President: do you think we would be hearing the same causal assertions?
Look for the next post debunking their claims about jobs and wages.
– Gene Sperling