Tuesday, April 5, 2011

Tax Cuts and Economic Growth

Paul Ryan thinks we should cut taxes, partly because he thinks cutting taxes would lead to more economic growth, and he cites a Heritage Foundation study to prove it:
A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to Heritage’s analysis, it would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year.
As Matt Yglesias points out, Heritage said exactly the same thing about the Bush tax cuts, which were supposed to lead to an economic boom and the creation of 1.6 billion new jobs over the next decade. Actually, the US economy added zero jobs over the decade years following the Bush tax cuts. So why does anyone think it would be different this time? Yglesias:
So keep in mind that this is the metric by which Paul Ryan wants you to judge him. If you believe George W Bush unleashed an unprecedented economic boom with great jobs performance, rising incomes, and the paying off of the national debt then you’ll find a lot to like about Rep Ryan’s plan.

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