The GOP's Same Old Tax Cut Refrain

Mortimer Zuckerman published an alarming essay in The Wall Street Journal this week. Among the dismal economic numbers he highlighted was this one, which was especially painful and poignant to those of us who served in the Bush administration: The total number of jobs lost since the onset of recession last fall now exceeds the total number of jobs created during the entire Bush administration.

Even before the autumn collapse, the Bush economic expansion ranked among the very weakest since the end of World War II. In terms of employment growth, income growth, investment growth, and GDP growth it lagged well behind the average of the nine other post-1945 expansions. (It did, however, rank among the longest.)

If Republicans are to govern more successfully in the future, we need to open an honest discussion about what went wrong in the recent past.

It's hard to recall it now, but the economic outlook appeared ominous in January 2001. The dot-com bubble had burst, leaving behind a great mountain of business indebtedness. The country had invested heavily in new technology and new capacity, and nobody could quite figure out how these investments would generate a profit.

Consumers, too, staggered under heavy loads of debt, especially credit card debt.

Among top earners, wealth had expanded handsomely in the 1990s. But the middle had not done nearly so well, creating a widening gap between the top and middle, and an even more rapidly expanding chasm between top and bottom.

Confronting these challenges, Republicans rummaged through their tool box and passed an array of substantial tax cuts in 2001 and 2003. Marginal tax rates were cut, followed by capital gains rates and dividend rates. The child tax credit was doubled from $500 per child to $1,000. New credits were offered for energy conservation and for other socially positive actions.

These measures generated some good effects. Economic growth accelerated after the 2003 tax cuts were passed. The per-child tax credit put an average of $547 into the annual budgets of households in the middle fifth of the income distribution. That's almost as much as the typical American household spends on clothing per member.

Still, it has to be acknowledged that the tax cuts did not deliver the more robust benefits we had anticipated. Job growth, for example, consistently underperformed Bush administration projections, and investment growth followed more or less the same path after the 2003 tax cuts as it had after the 1993 tax increases.

So here is a proposition for Republicans and conservatives. Our policy response to the challenges of 2001 was a reprise of our policy response to the crisis of 1981. But whereas the 1981 crisis was a supply-side crisis, marked by slumping productivity, dwindling output, and excess monetary creation, the 2001 problem had very different contours. So we really should not have been surprised if measures that had worked well 20 years before worked less well under very different circumstances 20 years later.

Now the nation faces a third crisis, potentially almost as severe as 1981, but different again in type and nature. And conservatives face a challenge of our own: Can we develop policies this time that respond to the specific needs of the moment? Or are we doomed—like a once-platinum rock band—to reprise forever our greatest hits of three decades ago?

Originally published in The Week.