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When trying to figure out if something worked, sometimes it helps to go back and look at the reasons why it was done.
If, for example, you said it was necessary to go to war against a country because it had weapons of mass destruction and it later turned out there were no such weapons, well, that would be something to take into consideration. Or if you said you wanted to overhaul Social Security because its survival was at stake and it was really the case that there was no crisis at all.
It's the same with the federal income tax cuts. The official reason they were undertaken was to create jobs and improve the economy. We know this for the simple reason that the tax cuts have a name: the "Jobs and Growth Tax Relief Reconciliation Act of 2003."
When the rate reduction package became law in July 2003, the people who supported it did not shrink from bold predictions about how many more people would be working as a result of the wonderful things it would do. The president's Council of Economic Advisors (hint: do not hire this group to help you with your family finances if you want to stay afloat) said that by the end of 2004 the nation would see the creation of 5.5 million jobs. To be perfectly fair, the CEA actually said back in 2003 that with no policy change there would be 4.1 million new jobs and the extra added kick from tax cuts would create another 1.4 million. But it still adds up to 5.5 million.
We can afford to be charitable here because, no matter how you look at it, the economic advisors' crystal ball was as accurate as predicting the Knicks would be NBA champs. Actually, you could argue that the Knicks will come closer, because total job growth nationwide was just 3.1 million. If you want to be happy with that number, go ahead. But it's awfully hard to make the case that we needed tax cuts if they so miserably failed to deliver on their promises. (one apparent advantage of politics over sports: George Bush got to keep his job; Lenny Wilkens didn't)
If it's any consolation, New Jersey did better than most places. Over the 18 months from July 2003 to the end of 2004, the state became home to 107,000 new jobs. But if the tax cuts had been what they were cracked up to be, you could have tacked on another 54,000. A note on methodology here: we know this because the Washington-based Economic Policy Institute crunched the numbers and came up with a formula for calculating how many of the 5.5 million new jobs each state ought to have expected. As it happened, only Hawaii and Wyoming met the targets.
Pennsylvania did worse than New Jersey. Its job-creation projection was 171,000 and only 45,500 materialized, for a shortfall of 126,000. In fact, Pennsylvania is one of 29 states where the number of people employed at the end of 2004 was actually lower than when the last recession began in March 2001. New Jersey just missed being in that dubious group, having seen 2 percent job growth during those 45 months. But even that isn't as good as it sounds. During that same period, New Jersey's working age population actually grew by 3.4 percent. If job growth kept up with population growth, another 56,000 persons would be working in the state.
What's it all mean? Well, first of all, don't blame all economists. Back in 2003 a group of them much larger than you could fit in your rec room (especially if they lugged in all their Nobel Prize hardware) questioned the wisdom of big tax cuts that gave the most money back to the richest people. These economists turned out to be bang-on in predicting the "Jobs and Growth" tax cuts would actually produce huge deficits, worsen the income inequality already plaguing the land and "reduce the capacity of the government to finance Social Security and Medicare benefits as well as investments in schools, health, infrastructure, and basic research."
Hmmm, maybe I started this with the wrong assumption. Could it be that these tax cuts did exactly what they were supposed to do? Maybe it was just the name that threw us off. Had they been called the "Redistribute Income-from the Bottom to the Top" tax cuts or the "Let's Starve the Government and Make it Easier to Privatize" tax cuts then we would have had an easier time measuring their success.
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