How does one analyze the economy's performance without considering tax policy?
In a column posted on the afternoon of December 8 at MSNBC's web site, James C. Cooper and Kathleen Madigan of Business Week Online devote over 1,100 words to analyzing and explaining the current strong economy, and fail to cite the 2003 Bush tax cuts as a possible contributing factor. In fact, the words "tax," "Bush," and even "government," do not appear at all!
Cooper's and Madigan's explanations center around spending:
So why has the economy performed above expectations amid unexpected developments? The main explanation seems to be that, despite the Fed's desire to tighten monetary conditions, consumers and businesses, on average, still have access to cash, whether through cheap borrowing, better income and profit growth, or rising housing and stock market wealth. Accommodative financial conditions are proving to be the economy's Peyton Manning, quarterbacking the steady forward movement in demand.
Cooper and Madigan mention "better income" as a contributing factor without considering that "better after-tax income" might be what really matters, and what really gives consumers the ability to spend more than they could prior to the 2003 Bush tax cuts. And they cite "cheap borrowing," even though the Federal Reserve has raised rates 12 consecutive times (midway through article) since June 2004.
The economy has grown at an annualized rate of 3% or more for the past 10 consecutive quarters, the second longest such streak on record, exceeded only by the 13-quarter string that occurred from 1983-1986. The Reagan tax cuts ignited that 1980s economy and sustained the rest of that decade's growth. The current streak began in Spring 2003, the quarter during which the legislation that made the Bush tax cuts retroactive to the January 1, 2003 passed.
And contrary to some claims earlier this year that the tax cuts were a one-time shot of adrenaline, shouldn't it have at least occurred to the Business Week writers that the sustained pace of consumer spending is occurring because Uncle Sam is taking less of their earnings?
(Cross posted at bizzyblog.com)