Jobs, Taxes, Oil, Investment and Debt
by PETER HUESSY
October 5, 2012
This week Ruth Marcus of the Washington Post writes that cutting taxes has no effect on economic growth. Hit the rich she says. Larry Kudlow of National Review writes that cutting taxes expands economic growth and creates jobs through private investment. Who is right?
Kudlow. Hands down. Slam dunk.
Ms. Marcus fails to examine a simple proposition: when did the past four recoveries begin, when did tax rate cuts kick in, and how many jobs were thus created by new private investment.
Mr. Kudlow connects the job growth with the tax rate cuts and makes the case.
Let's look it up.
In 1983, Reagan's tax rate cuts fully kicked in. Private investment soared to $177 billion or by 33%, and exceeded the previous four years by a factor of ten. 4.9 million Jobs were created over the next year. 11 million over 3 years. Government spending was kept at 20% of GDP. Reagan eliminated price controls on oil and prices dropped $17 a barrel.
In 1997, the Clinton administration cut taxes on capital gains, increased the child tax credit, reformed welfare and adopted a plan to cut government spending to 18% of GDP and balance the budget. In 1997, private investment increased by $148 billion, the largest amount in the eight years of the Clinton administration. 3.3 million jobs were created that year. Oil production increased and oil prices averaged $16 a barrel.
In 2003, President Bush secured a cut in tax rates, with 80% of the cuts occurring in that year. Private investment into the economy soared to $250 billion, a record, and next year 2.3 million jobs were created. By 2009, spending was 21% of GDP, at the historical average.
But oil prices reached $145 a barrel in 2008 and as Secretary of the Treasury Geithner explains, that killed the US economy. Fracking technology was just beginning to take hold but not soon enough to rescue the US economy.
In 2009-10, private investment into the US economy increased only a combined $100 billion. Government spending soared to 25% of GDP, far above the historical average. Since the June 2009 recovery began, a paltry 100,000 jobs a month have been created over three years. If one combined 1983, 1997 and 2004, job creation hit 11.5 million, more than three times faster than 2009-12.
Oil production on Federal lands declined 40%. Yet state and private lands-using American fracking technology-- have doubled gas production.
But the regulators want to kill fracking. And fracking is banned on Federal lands. Trillions of barrels of oil remain right beneath our feet and we cannot touch it. And oil tops $100 a barrel, an increase of $70 since January 2009.
The n Senator Obama campaigned in 2008 in Ohio and charged the Bush administration was immoral to have increased our debt by $4 trillion and cut household income $2000. He said we were buying too much oil from overseas. And thus no Republican deserved to be elected to the White House.
Since the 2009 recovery began, US household income is down 8% or over $4000. The national debt has climbed nearly $6 trillion. Oil has averaged near $100 a barrel, nearly triple what it was in 2009, and we are sending $300 billion overseas to buy it. While OPEC is getting rich, we are going broke.
The administration's policies are driving spending up to trillions of new debt. Today's spending of $3.8 trillion is projected to rise to $5.5 trillion in ten years. This is driven in part by Obama Care, which will cost $2.7 trillion, with only $500 billion in new taxes to pay for it. Yet 30 million will remain uninsured.
By 2020, deficits remain over $1 trillion according to the administration's own budget numbers. Oil and energy costs are being deliberately increased, because this administration believes we consume too much energy. His Energy Secretary wants the US to have European gas prices-that's $10 bucks a gallon.
More people have been added to the welfare and poverty rolls since 2009 than have been put to work. 591,000 people left the work force last month, giving up looking for work, losing hope.
The President says the private sector is doing fine. He says the deficit is only a problem for the "long term". He says "shovel ready"" jobs really were never available.
Washington Post writer Bob Woodward says that we are in a period of maximum peril, that our debt is "beyond unsustainable", and the President remains ambivalent even though his Treasury Secretary warns him "You have to fix it". There was a bipartisan deal on the table in 2011, but the President said no.
Under the President's own rules he used in the 2008 campaign, his policies have failed, they have not worked. Doing over the next four years what he has done in the past four years will not turn failure into success. As his Secretary of the Treasury said to Congress: "We have no plan but we do not like yours".
Peter Huessy is President of GeoStrategic Analysis of Potomac, Maryland , a defense and national security consulting firm.