The following thoughts I also posted on my own personal blog. I believe that the Bush tax cuts was terrible fiscal policy and that we still are suffering and chafing under them now, witness the 4 monthg farce of debt ceiling chicken we just went through. If it weren't for the Bush tax cuts this never would have happened as we would not be in such deep deficit.
Ok. So just finished Krugman's The Great Unravelling, a tremendous read. It was mostly a compilation of columns he wrote starting with the late 90s till 2004, he published in 2005. The unravelling he speaks of is US economic fortunes from a time of widely growing prosperity and budget surpluses, to a sudden reversal that left us with budgets as high as the eye can see and higher unemployment-and importantly worse jobs too for even those that found work after the bad recession of 2001-though people like Alan Greenspan remember that as a "very mild recession."
How can such a disparity be? To understand remember the opening lines: "'It was the best of times; it was the worst of time."
Now that I have finished I'm on to another book he wrote, actually prior to Unravelling though as the latter is a compilation not real prior to but concurrent with-some of it was before some of it was after-but in any case the book in question is Fuzzy Math this was not a compilation but a short book he wrote in 2001 about the Bush tax cuts.
Another really valuable read, on pg 20 he puts it best, "an important reason why conservatives want to cut taxes is that they want to keep the federal government hungry; they don't want money readily available to finance new programs or even to maintain old ones."
That is the exact definition of starve the beast. And that is exactly what has happened: huge deficits 'as far as the eye can see' no money for anything else. So the Bush tax cuts are literally responsible for the absurd game of debt ceiling chicken we suffered through for 4 months.
Looking back on the Bush tax cuts there is simply a religious belief about the power of tax cuts among conservatives. Bush's reasons for the tax cuts shifted. Initially he-and to his discredit Alan Greenspan used this incredible argument on Congressional testimony in March 2001-argued that the surpluses gained in the Clinton years needed to be dispersed as quick as possible lest they do untoward harm.
Of course the surplus could also have been put towards social spending after major cuts in discretionary spending during the 90s, but the Bush team demagogued it, "It's your money."
I say demagogue as if it was "our money" most of us didn't get to see much of it.
Once the economy slipped into recession and the surpluses disappeared, then Bush's argument shifted from a need to discharge the surplus to a need to stimulate the economy. In theory(and Krugman explains this in detail in Fuzzy) this was a Keynesian premise. But the kind of tax cuts Bush laid out were not stimulative, much more likely to be saved than spent.
As we noted above there is a religious belief on the part of supply siders on the virtues of tax cuts. As Krugman notes, it doesn't work both ways: there is no one who argues categorically against any tax cuts ever. Though the supply siders try to conceive it this way it is not symmetrical between supply siders and any other economic school demand side or no.
Indeed some tax cuts in certain situations can be highly stimulative as Keynes had argued. Trouble is Bush's tax cuts were so skewed to the rich. The rich by definition always can be counted on to save more than those of low income. This is logical as 2 people, no matter how great the wealth disparity between then will never have a proportionate disparity in needs.
A stimulative tax cut would be targeted at the poor and middle class. A good place to start would be the payroll tax. Believe it or not, 80% of Americans pay the majority of taxes in payroll not income taxes. So cutting here would benefit most Americans and been more stimulative. Of course cutting the payroll tax would lower revenue, but the time we are talking about had the unique problem of what to do with a 4.6 trillion dollar surplus(of course this turned out to be illusionary).
In addition, what would probably be best for the payroll tax is make it progressive, as right now it's wholly regressive-because it's flat, and caps out at $106,000 of income. If you were to remove the cap and tax payroll on a progressive base even now we could raise a great deal of revenue and give people some tax relief. At the time of the surplus has something like this been done, the Bush years would not have been the fiasco they were.
If you want to see this in it's orignal format see
http://diaryofarepublicanhater.blogspot.com/2011/08/more-on-bush-tax-cuts.html There are a lot of great movements out there like Pink Slip Rick and Recall Walker, but to my mind the biggest movement right now should be Expire Bush Tax Cuts as there is no more important issue facing the nation than this terrible impediment to it's fiscal health.
A good companion piece to this is a recent article in Newsweek by Roger Lowenstein
http://www.thedailybeast.com/newsweek/2011/08/14/economic-recovery-is-on-the-horizon.html
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