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Bush Tax Cuts: Where Was the Growth?

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"Bush Tax Cuts: Where Was the Growth?"

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I say kudos to Erick Erickson for not simply relying on lazy anti-tax rhetoric and actually attempting to delve in and make the case that the Bush administration’s tax policies led to; good macroeconomic outcomes. Unfortunately, this kind of analysis doesn’t tell you very much: “More crucially, after the 2001 initial tax cuts, the annual growth rate went from 0.3% in 2001 to 2.5% in 2002. By 2004, GDP growth was the highest in 20 years.”

It’s true, Bush took office at the tail of a recession and then the recession ended and the economy was growing. But as my colleague Michael Ettlinger and EPI’s John Irons detailed in their excellent September 2008 paper “Take a Walk on the Supply Side” if you compare the Bush era to the relatively high tax Clinton era it looks quite bad:

supplyside

One frequent thing to do is to measure economic activity from business cycle peak to business cycle peak. And we see that the era during which Bush’s tax policies prevailed was the first in which median household income declined:

p60-235 1

In essence, we’re looking at the worst peak-to-peak economic performance ever, followed immediately by the worst recession since World War II.

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