Tuesday, February 10, 2009

Did tax cuts cause the current crisis?

Obama sez yes:

"But as we've learned very clearly and conclusively over the last eight years," Obama said, "tax cuts alone can't solve all of our economic problems, especially tax cuts that are targeted to the wealthiest few Americans. We have tried that strategy time and time again, and it's only helped lead us to the crisis we face right now."

With all due respect, I don't think tax cuts had much to do with the housing boom (unless you mean things like the deductibility of mortgage interest and the elimination of capital gains on housing appreciation but those weren't Bush's). I don't think tax cuts gave us years of overly loose monetary policy. I don't think tax cuts caused the incredible decline in standards for getting a mortgage. I don't think tax cuts caused the failure of ratings agencies to recognize the risk in repackaged mortgages. In sum, I don't think tax cuts had anything to do with us getting to the crisis point where we currently sit.


Anonymous said...

Tax cuts didn't shift the incentives at all? And entering a recession with a trillion dollar deficit doesn't have any effect on the cost of the response?

Anonymous said...

I would further add that tax cuts had little to do with the current deficit...at least when juxtaposed with the effects of exorbitant spending associated with the Shrub's imperialistic policies.

Anonymous said...

The Reagan tax cuts have buoyed the economy for the better part of almost 30 years now. The deficit's are a the result of spending problem, not a revenue problem.

How many people can be be hired from a $ 1,000 rebate from the government ? Answer, maybe the lawn can be mowed for a few months, but the fact is zero.

The vilification of the rich by the left always has been, is, always will be evidence that the liberals do not have any semblance of an understanding of economics.

Anonymous said...

You don't get it, Bush is responsible for everything that has gone wrong since the Peloponesian war.

Anonymous said...

If one is going to engage in this type of reasoning, why not blame the current economic crisis on the rapid growth in federal spending and the the rapid growth in the deficit.

"Government spending alone can't solve all of our economic problems, especially spending that is targeted to the most powerful special interests. We have tried that strategy time and time again, and it's only helped lead us to the crisis we face right now."

Anonymous said...

Bush's tax cuts stimulated an already over-stimulated economy. There is a time for tax cuts/increased spending; during an economic downturn.

Bush spending more and taxing less during economic upswing created an environment of unsustainable growth.

Had there not have been a housing bubble, the crash would have been derived from another industry, perhaps insurance (AIG to take the place of Freddie Mac for instance) or motor vehicles. Running a huge deficit during economic boom times made a collapse inevitable .

Anonymous said...

Of course the tax cuts caused the housing bubble and then the recession. Where do you think the money that was given out in mortgages, sub prime or otherwise came from. And all the investment in the collateral mortgage instruments.

When the top tax rates are dropped, and taxes are distributed in ways that give a large percentage of the money to those in the upper income brackets, it is rather rare that those who get large dollar amounts of tax returns will actually do things like start new businesses or hire more employees or upgrade plant equipment. Any Economics 101 textbook will tell you that a business or an individual does not create jobs just because they got a huge tax cut, A business creates a job if and only if there is enough demand for their product or service to justify creating that job. The job must at very least earn enough through the goods or services it produces to at least pay for itself, or optimally, to pay for itself and create added worth (that is a profit for the business owner)

Tax cuts, like the one Bush gave focused close to half of the 2.1 trillion dollars that were given in the two tax cuts to those in the top two percent of income earners. After they bought the new luxury car, the new yacht, and the new mini mansion, the only place they could go was to some hot sector of the market to invest their money. That heated up those markets more. That market was real estate. Or to put it more simply, investing in other people's mortgages.

Real estate speculation caused the Great Depression, as well as the market bust during Reagan's second term. Money from tax cuts was invested in some form of real estate investment.

The Bush Tax cuts did the same thing. The stock market was tepid, so the top two percent, and the millionaires that make up a portion of that group, people who were seeing anything from 100,000 dollars more a year to a million more, were not taking that money and spending it all on the sort of consumer goods and services that create a lot of jobs. Mercedes and BMW dealerships create some jobs, but nothing near as many as Ford or Chevy or Toyota dealerships. Yacht makers create some jobs, but not as many as a company that makes small bass boats. And a developer that builds small homes in large developments creates more jobs than the developer who builds a few mansions. After those who got back a lot of dollars bought enough of the luxury items they like, they started looking to invest the rest in some investment that was going to make them more easy money, rather than doing the hard work that running a business takes.
The place they usually run to is some sort of real estate investment.

The main assertion made by Republicans is that if you give a well off person large tax cut, they WILL use it to start a new business and create new jobs. The reality is that at best this person MIGHT do so.

Which is why both the Reagan and Bush tax cuts created a new economic phenomenon. The jobless recovery.