Bush's Tax Cuts

Bush Watch Home: "Monday May 22

Bush's Tax Cuts To Wealthy Have Not Helped The Economy, Explains Krugman:

Alan Gertler, Reno, Nev.: I'm a scientist, not an economist, so I'm fairly naive when it comes to what drives the economy.

My question is this: Have the tax cuts stimulated the economy as claimed (which I don't believe given the past cases of Reagan and Bush senior), or has it been the willingness of the government to continue massive spending by increasing our debt that has led to the growth of the economy?

Paul Krugman: It's actually neither.

About the Bush tax cuts: the tax cuts of 2001 evidently didn't do the job; these days, the Bush people talk about the economy as if history began in the middle of 2003, after their SECOND wave of tax cuts. But while the economy did start growing, finally, in 2003, the growth wasn't at all of the form you'd expect if tax cuts were responsible. The main tax cuts were on dividends and capital gains; supposedly this would make it easier for businesses to raise funds and invest. But business investment hasn't been the main driver of growth; in fact, businesses have been sitting on huge piles of earnings, reluctant to invest. Instead, the big driver was housing construction and consumer spending. So what really happened? Low interest rates led to a housing boom that eventually turned into a housing bubble. High house prices made people feel richer, and they could borrow against the increased value of their homes, feeding consumer spending. Tax cuts had nothing to do with it."