The Bush tax cuts will be extended another two years, which means they will probably be extended forever until the next tax cut. What this means for the economy is difficult to tell. After all, the Bush presidency saw the creation of only 3 million net new jobs, compared with 23 million under Clinton, 2.5 million under George H.W. Bush, 16 million under Reagan and 10.5 million under Carter (!). So job creation is not the forte of these tax rates.
It seemed to work under Reagan, but back then the United States was a manufacturing powerhouse and the world’s largest exporter, with less industry consolidation, fewer jobs being sent overseas and a more dynamic economy. The old middle class was still intact. Yet Bill Clinton slightly raised tax rates on the rich and saw even more jobs created.
By the time George W. Bush saw his cuts passed, the economy was unhealthily deregulated, globalized, consolidated and financialized. The wealthiest Americans, who most benefited from the tax cuts, had far more options as to where they could invest for high returns. Much of it had little to do with sustainable, productive enterprise that creates real jobs in America. Now with the worst recession since the Great Depression, companies aren’t hiring much; more than a few used the downturn as an excuse to slim down, and record profits are coming with fewer workers.
On the other hand, the extension is undoubtedly a win for those who make most of their income from investments, as opposed to wages. Maybe D.C. will forget about the deficit and debt — these cuts must be paid for, after all — and we’ll see a brief bubble of investing and corporate welfare. And an argument might be made that keeping the low tax rates in place would avoid capital flight. Maybe the deal will preserve some jobs. But large-scale job creation? We’re still waiting.
As for the payroll tax holiday: Small ball that likewise will do little for new jobs and dig a further hole in the debt.
Today’s Econ Haiku:
Sad day, ship of fuels
If Airbus gets the tanker
Boeing will get hosed