Monday, July 17, 2006


Did Bush's 2003 Tax Cuts Kill US Wage And Job Growth?

Republicans have always claimed that cutting taxes, especially on the rich and corporations, leads to higher wages and more jobs. Bonddad makes the case that, with the 2003 tax cuts, the opposite is what really happened.

Well, there's a gap in his case. First, the employment ratio (percentage of working age population employed)has lagged. That means that official employment is probably understating the situation. Why that should be is unclear, but it means there may be a supply-based downward pressure on wages. Illegal immigration could be a factor (though economists generally say that immigrants increase growth, they do compete for entry level jobs in construction, food packing, retaurant work, and so on). Furthermore, the quality of those jobs is declining.

I think the story of tax cuts is much simpler. The tax cuts go to those at the top. They have more money to spend, so they drive up the price of assets. Foreign stock markets and real estate, for example. For its own reasons, the US market has been a disaster, but even it would be lower had there not been tax cuts.

The corporate tax cut similarly has increased corporate revenues such that a wave of M&A is underway.
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