The Economy, The Budget, and Tax Cuts
Published on April 26th, 2003 by J.T in PoliticsBrad DeLong explains how the budget (deficit) and tax cuts are currently screwing up the economy and will do so for many years to come.
It’s an Industrial Sealant! No, It’s a Dessert Topping!
Paul Krugman takes aim at the Bush tax cut. The underlying problem is that the Bush administration had no agreement about what its economic plan was. (a) The political shop seems to have demanded a bold policy that would fight the recession and create jobs. (b) The people who actually control things demanded a tax cut for the rich. (c) The economists (chiefly Glenn Hubbard) sought a program to boost economic growth. This “It needs to be an industrial sealant! No, it needs to be a dessert topping!” policy-development process produced (a) an increase in the deficit that is not front-loaded toward today (when a bigger deficit would be good and boost employment) but back-loaded toward the distant future, and as a result the (b) tax cut for the rich that was proposed took the form of (c) proposing to permanently reduce the double taxation of corporate income.
(c) by itself might have been a good program to boost long-run growth, but not if it is accompanied (as it is) by a large, permanent increase in the government’s budget deficit–an increase that is more effective at retarding long-run growth than the rationalization of corporate income taxation could possibly be at boosting it. (a) by itself might have been a good program to boost employment by boosting demand in the short term, but–as Krugman points out–it is extraordinarily ineffective and costly when considered as a program whose main point is to boost employment over the next two years.
Not surprisingly, we have something that is neither a good industrial sealant nor a good dessert topping. It is, however, still pretty effective as a tax cut for the rich.
