Thursday, October 18, 2012
GOP Economist Says Willard's Tax Plan Won't Create New Jobs
My belief is that cutting taxes will do nothing to create new jobs. Now it looks like an economist agrees with that assessment -- and it's not a left-wing economist, but one from the right. It is Bruce Bartlett (pictured above), who was a senior economic advisor for President Ronald Reagan. Bartlett notes that Reagan tried to spur job growth by cutting taxes in 1986, and it simply did not work. Here are his exact words:
Real gross domestic product growth was about the same after the 1986 act took effect in 1987 as it was before, and tax reform obviously did nothing to forestall the 1990-91 recession. Unemployment fell, but it had been trending downward before tax reform, and the 1986 act probably had nothing to do with it. Within a couple of years it was trending upward again.
By the mid-1990s, it was the consensus view of economists that the Tax Reform Act of 1986 had little, if any, impact on growth. [...]Compositional changes in income are not unimportant and may be worth the effort of doing tax reform, even if there is no growth effect whatsoever. For example, it may improve fairness, simplicity and tax administration. But it appears that even in a best-case scenario in which the top rate comes down a lot – the 1986 act lowered the top rate 22 percentage points from 50 percent – the real economic effects are at best very modest.
It didn't work because it did not increase demand, which as I have said, is the only thing that spurs new job creation (because new workers are needed to meet the increased demand for more products or services). Any employer would be foolish to hire new workers that are not needed -- no matter how much more tax money he is allowed to keep. Why should we expect cutting taxes to magically create jobs in 2013, when it did not do so in 1986 (when taxes were higher than they are now)?