Rush Was Right (According to Nation's Chief Economist)
Sep 07, 2010
By Matt Bogard
White house chief economist Christina Romer (former chair of the WH Council of Economic Advisers) is calling for more tax cuts and spending. This is odd given that some commentators have tried to link the tax cuts of the early 2000s with the financial crisis and incorrectly claim that they lead to budget deficits. (from 2003-2007 revenues increased 35% and deficits as % of GDP more than halved). Aside from that there is no accepted theory of business cycles (which would explain the financial crisis and the current recession) that hinges on marginal tax cuts. But most commentators and politicians could care less about economic evidence.
According to Romer's research $1 in tax cuts translates into about $3 in stimulus while many other economists estimate that $1 in spending translates into about $1.50 in stimulus.
Despite the evidence, the last stimulus package contained lots of spending, but made no attempt to further lower current marginal income taxes, or extend the tax cuts of the early 2000s. (note it did contain tax credits, but tax credits are in effect spending under a different name). Based on the evidence, it seems the thing to do now is extend or lower current marginal income taxes. Oddly enough, our nation's former Chief Economist is starting to sound a lot like Rush Limbaugh:
'Limbaugh Stimulus Plan of 2009: 54% of the $900 billion -- $486 billion -- will be spent on infrastructure and pork as defined by Mr. Obama and the Democrats; 46% -- $414 billion -- will be directed toward tax cuts, as determined by me...In this new era of responsibility, let's use both Keynesians and supply-siders to responsibly determine which theory best stimulates our economy -- and if elements of both work, so much the better." -Rush Limbaugh
With democrats like Florida Governor Sink supporting extension of these tax cuts, it looks like we may start to see the kind of bipratisan and independent embrace of evidence based policies that Mr. Limbaugh advocated long ago and head off a double dip recession.
My Bipartisan Stimulus
Wall Street Journal January 29,2009
WH Economist Calls For More Spending, Less Taxes
AP/Yahoo News September 1, 2010
Tax Cuts: The Fruitful Multipliers
January 5, 2009