Tag Archives: Employment

Commentary

How did the Reagan tax cuts and Bush tax cuts affect unemployment?

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Consider this article by the Cato Institute, a libertarian think tank, which discusses how the Reagan tax cuts affected the unemployment rate.

Excerpt:

In 1980, President Carter and his supporters in the Congress and news media asked, “how can we afford” presidential candidate Ronald Reagan’s proposed tax cuts?

Mr. Reagan’s critics claimed the tax cuts would lead to more inflation and higher interest rates, while Mr. Reagan said tax cuts would lead to more economic growth and higher living standards. What happened? Inflation fell from 12.5 percent in 1980 to 3.9 percent in 1984, interest rates fell, and economic growth went from minus 0.2 percent in 1980 to plus 7.3 percent in 1984, and Mr. Reagan was re-elected in a landslide.

[…]Despite the fact that federal revenues have varied little (as a percentage of GDP) over the last 40 years, there has been an enormous variation in top tax rates. When Ronald Reagan took office, the top individual tax rate was 70 percent and by 1986 it was down to only 28 percent. All Americans received at least a 30 percent tax rate cut; yet federal tax revenues as a percent of GDP were almost unchanged during the Reagan presidency (from 18.9 percent in 1980 to 18.1 percent in 1988).

What did change, however, was the rate of economic growth, which was more than 50 percent higher for the seven years after the Reagan tax cuts compared with the previous seven years. This increase in economic growth, plus some reductions in tax credits and deductions, almost entirely offset the effect of the rate reductions. Rapid economic growth, unlike government spending programs, proved to be the most effective way to reduce unemployment and poverty, and create opportunity for the disadvantaged.

The conservative Heritage Foundation describes the effects of the Bush tax cuts.

Excerpt:

President Bush signed the first wave of tax cuts in 2001, cutting rates and providing tax relief for families by, for example, doubling of the child tax credit to $1,000.

At Congress’ insistence, the tax relief was initially phased in over many years, so the economy continued to lose jobs. In 2003, realizing its error, Congress made the earlier tax relief effective immediately. Congress also lowered tax rates on capital gains and dividends to encourage business investment, which had been lagging.

It was the then that the economy turned around. Within months of enactment, job growth shot up, eventually creating 8.1 million jobs through 2007. Tax revenues also increased after the Bush tax cuts, due to economic growth.

In 2003, capital gains tax rates were reduced. Rather than expand by 36% as the Congressional Budget Office projected before the tax cut, capital gains revenues more than doubled to $103 billion.

The CBO incorrectly calculated that the post-March 2003 tax cuts would lower 2006 revenues by $75 billion. Revenues for 2006 came in $47 billion above the pre-tax cut baseline.

Here’s what else happened after the 2003 tax cuts lowered the rates on income, capital gains and dividend taxes:

  • GDP grew at an annual rate of just 1.7% in the six quarters before the 2003 tax cuts. In the six quarters following the tax cuts, the growth rate was 4.1%.
  • The S&P 500 dropped 18% in the six quarters before the 2003 tax cuts but increased by 32% over the next six quarters.
  • The economy lost 267,000 jobs in the six quarters before the 2003 tax cuts. In the next six quarters, it added 307,000 jobs, followed by 5 million jobs in the next seven quarters.

The timing of the lower tax rates coincides almost exactly with the stark acceleration in the economy. Nor was this experience unique. The famous Clinton economic boom began when Congress passed legislation cutting spending and cutting the capital gains tax rate.

Those are the facts. That’s not what you hear in the media, but they are the facts.

News

The long-term impacts of the Romney and Obama economic plans

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From the Tax Foundation. (H/T Tom)

Excerpt:

Over the past several weeks, Tax Foundation economists have published a series of studies that analyze the long-term economic and distributional effects of the tax plans outlined by President Barack Obama and Governor Mitt Romney. These comprehensive assessments were done using the Tax Foundation’s Tax Simulation and Macroeconomic Model, which measures how changes in tax policies affect the economic levers that determine economic growth, workers’ incomes and the distribution of the tax burden, says the Tax Foundation.

The candidates’ tax plans would have a starkly different impact on the economy.

  • The Romney plan, which would reduce tax rates on individuals and corporations, would increase gross domestic product (GDP) 7.4 percent over the long run.
  • The Obama plan, which would raise tax rates on individuals, would reduce GDP 2.9 percent over the long run.

These very different futures are the direct consequence of the candidates’ very different approaches to taxing the inputs of production, i.e., capital and labor.

  • Obama would raise taxes on investors, which would reduce the capital stock by 7.5 percent.
  • Romney would reduce taxes on investors, which would increase the capital stock by 18.6 percent.
  • Obama would raise taxes on labor, which would reduce the wage rate by 2.3 percent and hours worked by 0.7 percent.
  • Romney would reduce taxes on labor, which would increase the wage rate by 4.7 percent and hours worked by 2.9 percent.

[…]Tax Foundation’s analysis indicates that for every dollar of tax revenue raised under the Obama plan, the economy loses $10. Under Romney’s plan, for every dollar of tax revenue lost, the economy gains $8.

And more from the Tax Foundation. (H/T Tom)

As a follow-up to the Tax Foundation’s recent assessment of the macroeconomic effects of Governor Mitt Romney’s tax plan, Tax Foundation Senior Fellow Stephen Entin now turns his attention to measuring the macroeconomic effects of President Barack Obama’s tax proposals.

[…]The model results:

  • President Obama’s tax plan would gradually reduce the level of gross domestic product (GDP) by nearly 3 percent, relative to the baseline projection, over five to 10 years.
  • Labor income would be lower by a similar amount, driven down by fewer hours worked and lower wages per hour.
  • The reduction in hours worked, about 0.75 percent, would be the equivalent of about a million jobs lost in today’s economy, with those still employed earning roughly 2.28 percent lower wages.
  • Alternatively, one could view the result as losing four million jobs at unchanged pay levels.
  • The plan would also trim the capital stock by about 7.5 percent (or over $2 trillion in lost investment in plant, equipment and buildings, things that drive productivity, wages and hiring).

The study also measured the economic and distributional effects of President Obama’s corporate tax plan and the tax changes contained in the Affordable Care Act beginning in 2013. The results found that these proposals would lower economic growth while substantially lowering workers’ wages and incomes. Ultimately, President Obama’s tax plans would be very harmful for the nation’s long-term economic outlook.

Do you like prosperity? Would you like to have a job? Would you like to be able to buy things for your friends and family? Would like to be able to give to charities? Then vote for Mitt Romney!

News

New e-mails reveal that White House pressured Department of Energy to make loans

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From the Washington Examiner.

Excerpt:

Previously undisclosed emails made public today by the House Oversight and Government Reform Committee describe multiple instances of White House pressure on career Department of Energy officials to speed up approval of government loans to clean energy firms like Solyndra and Abound Solar.

President Obama is described in one of the emails as having personally approved “moving it ahead,” thus reversing a prior decision by DOE career officials not to extend $2 billion in tax-funded help to AREVA, a French nuclear power company, on an Idaho project.

Vice-President Joe Biden is described in other emails as exerting heavy pressure to gain approval of a $1.3 billion wind farm project at Shepherd’s Flat, Oregon.

The new emails contradict claims by Obama and others in his administration that all decisions on the $20 billion DOE clean energy loans were made by career executives in the department.

[…][A]n Oct. 30, 2010, email from Jim McCrea, a credit advisor to the energy loan program, to Jonathan Silver, the program’s executive director, described his worries about pressure from the White House to use a “fast-track process” to approve loans.

“I am growing increasingly worried about a fast track process imposed on us at the POTUS [President of the United States] level based on this chaotic process that we are undergoing … by designing the fast track process and having it approved at the POTUS level (which is an absolute waste of his time!) it legitimizes every element and it becomes embedded like the 55% recovery rate which also was imposed by POTUS,” McCrea said.

In another email made public today by the House panel, Silver instructed McCrea to tell a Treasury Department official of White House support for DOE help to Abound Solar.

“You better let him know that WH wants to move Abound forward. Policy will have to wait unless they have a specific policy problem with abound,” Silver said in the June 25, 2010, email.

Abound Solar is a Colorado-based solar panel manufacturer that had used $68 million of a $400 million DOE loan guarantee before filing for bankruptcy earlier this year.

You can a list of most of the green energy failures and the details of their Department of Energy loans here from Heritage Action.

Here’s a snip:

Thanks to analysts at The Heritage Foundation, a list has been compiled of 12 “green” energy companies which received Department of Energy (DOE) loan guarantees but are now bankrupt:

  1. “Abound Solar (Loveland, Colorado), manufacturer of thin film photovoltaic modules.
  2. Beacon Power (Tyngsborough, Massachusetts), designed and developed advanced products and services to support stable, reliable and efficient electricity grid operation.
  3. Ener1 (Indianapolis, Indiana), built compact lithium-ion-powered battery solutions for hybrid and electric cars.
  4. Energy Conversion Devices (Rochester Hills, Michigan/Auburn Hills, Michigan), manufacturer of flexible thin film photovoltaic (PV) technology and a producer of batteries and other renewable energy-related products.
  5. Evergreen Solar, Inc. (Marlborough, Massachusetts), manufactured and installed solar panels.
  6. Mountain Plaza, Inc. (Dandridge, Tennessee), designed and implemented “truck-stop electrification” technology.
  7. Olsen’s Crop Service and Olsens Mills Acquisition Co. (Berlin, Wisconsin), a private company producing ethanol.
  8. Range Fuels (Soperton, Georgia), tried to develop a technology that converted biomass into ethanol without the use of enzymes.
  9. Raser Technologies (Provo, Utah), geothermal power plants and technology licensing.
  10. Solyndra (Fremont, California), manufacturer of cylindrical panels of thin-film solar cells.
  11. Spectrawatt (Hopewell, New York), solar cell manufacturer.
  12. Thompson River Power LLC (Wayzata, Minnesota), designed and developed advanced products and services to support stable, reliable and efficient electricity grid operation.”

This is what the Obama adminstration means by “stimulus” and “shovel-ready” projects. This was their strategy to create jobs by spending taxpayer money and borrowing money from your children.