Another thing to remember, as you’re watching the Fiscal Cliff negotiations:
Back in 2006, President George Bush asked the US Treasury Department to analyze what would happen to the economy if his tax cuts were made permanent. Treasury economists conducted a “dynamic analysis” of the tax cuts, which was clearly intended to provide a political justification for making the tax cuts permanent.
But here’s what they found, instead:
even under favorable assumptions, making the tax cuts permanent would have a barely perceptible impact on the economy. Under more realistic assumptions, the Treasury study finds that the tax cuts could even hurt the economy. In addition, the study casts doubt on claims that the tax cuts are responsible for much of the recent growth in investment and jobs. It finds that making the tax cuts permanent would lead initially to lower levels of investment, and would result over the longer term in lower levels of employment (i.e., in fewer jobs).
The Treasury study finds that making the tax cuts permanent would reduce long-run labor supply (i.e., the number of people working and the number of hours they work) by 0.3 percent.
Three-tenths of one percent in today’s labor market translates into about 468,000 jobs.
If we end the Bush tax cuts, will those jobs come back?