1-13-06, 10:41 am
There is no connection between tax cuts for the rich and job creation, says a recently published study by United for a Fair Economy. In fact, slow job growth, declining wages and benefits, accompanied by widening income and employment inequality by race and ethnicity is the hallmark of Bushonomics.
'The president's tax-cutting policy is a failure in regard to job creation, and we need to recognize it as such, ' said Anisha Desai, program director at UFE and one of the report's co-authors. 'While there is no evidence that massive tax cuts create jobs, there is considerable evidence that they contribute to economy-choking deficits.'
In 2005, 3.5 million fewer jobs were created than were predicted by the President's Council of Economic Advisors, who estimated job growth at 3.1% rate in a normal year.
During a recent speech, President Bush bragged about the number of jobs created since the 2003 tax cuts. He failed to mention, however, that only half of the 9 million jobs he promised ever materialized.
Breaking down the numbers, Bush predicted that 2004 job numbers would far outpace normal job creation because of tax cuts for the rich. When that fell through by a substantial amount, he returned to what should have been the more level-headed prediction that job creation would simply keep pace with normal periods of economic growth. Again he has been proven wrong.
In fact, the rate of job growth in 2005 was less than half of normal periods of economic growth.
Bush's predictions were based on misguided thinking, known as the 'trickle down' theory, about the relationship between tax cuts for the rich, economic growth and job creation. Tax cuts for the rich, according to this thinking, are supposed to put more money into the economy and stimulate growth with benefits trickling down to middle and lower income people.
History does show, however, that tax cuts have across the board been followed by increases in the federal deficit.
UFE also points out the jobs that have been created have been of poorer quality with lower wages and fewer benefits. For example, the number of good quality jobs (defined as those paying at least $16 an hour, providing employer-paid health insurance, and providing a pension) has remained flat at 25% of all workers. Significant racial disparities persist: employment of African Americans is at 89.6%, compared to 95.2% for whites. And Latino workers average more than $10,000 per year less in earnings than whites, and this gap is increasing.
Scott Klinger, a co-author of the report and co-director of the Responsible Wealth Project at UFE, notes that simplistic links between tax cuts and job creation distort accurate understanding of how the economy works and, thus, prevent putting forth policies that will correct the problems.
Tax cuts for the rich, the central element of Bush’s economic policy, don’t spur job creation, because when rich people have additional income they buy stocks. Because these purchases are almost entirely of existing capital, this activity creates no new capital and no stimulus, says Klinger.
Tax cuts that benefit middle and lower income families have a different effect. Working families will re-circulate additional income in the economy generating new business and general growth, stimulating job creation.
To the extent that low interest rates have eased credit terms, working people have begun to return to normal levels of consumption. But this has little to do with tax cuts for the rich, and, because indebtedness has increased, it is a tenuous, even dangerous, basis for economic growth.
Another important element of economic growth and job creation that Bush would like to ignore is new government spending for social programs. Klinger adds that 'Government investment in things like education, community development and … social safety net programs … along with tax cuts targeted at people who will spend their tax savings stand the best chance of boosting economic activity and creating new jobs.'
Bush and the Republicans do not reject all new government spending, however. They have notoriously provided massive new giveaways and subsidies to their favorite corporations. But far more important to them, argues economist Robert Pollin in a 2004 interview with the British newspaper The Independent, is military spending.
Massive new military spending and the war economy has limited the damage tax cuts for the rich has caused. Pollin described the militarization of the economy as the Republicans' version of Keynesian economics, a theory that says government intervention in the economy with new spending can reverse recession and bring stability.
Economist Kent Sims, in the same piece for The Independent, noted, however, that military spending does not create new infrastructure and is the least effective form of government economic intervention over the long haul.
Unparalleled massive waste and inefficiency in military projects through duplication, over-spending, boondoggles, and expensive and unnecessary or unfeasible projects (the 'star wars' missile shields fits here) also hinder long-term benefit.
On top of these practical problems, from an ethical angle, most people reject putting the lives of their friends and relatives in the US military in danger by provoking war abroad in order to increase corporate profits or boost the GDP an inch or two.
Republicans like military spending better than social spending, however, because it directly benefits their corporate sponsors, has political mileage, and because the alternative – social spending – strengthens institutions that working families use everyday: public schools, publicly-run health care programs, Social Security, student loan programs, public housing, and other various public services.
The Republican ideology of promoting the narrow and exclusive interests of large corporations and the very rich above all else misses the boat when it comes to the general welfare. The result has been a hardship for working majority of the people.
In 2006, Democratic and independent political candidates should develop a coherent and comprehensive campaign to highlight these basic differences most people have with core Republican ideas, and they should intensify their demand that Congress block backward and destructive budget priorities. Sensible economic and budget policies are winning issues for potential congressional candidates. Mimicking Republican failures makes voting for the alternative pointless.
--Joel Wendland can be reached at jwendland@politicalaffairs.net.
