A Taxing President

Its been a fascinating week for that bemused breed: the GOP economic policy observer. And all the more so for Paul Krugman's collumn in The Times this morning. He nicely lays out the debate. Republicans complain they don't get much credit for a growing economy. Economists point out this is because most people haven't seen any benefit. He also picks up on new research highlighed a few days ago over at the CBPP showing huge rises in income concentration for the top 1% (and the top .01%) of Americans, and argues that most Americans haven't shared in this sucess.

Just for fun, here is a case in point. I was fiddling around with some wage figures for a report NDN is putting together on the Republican economic record. The Bureau of Labor Statistics tells us that the average American wage when the President won re-election was $480.41. (Stats fans - check the average weekly earnings box, and click retrieve data.) Today that figure is $543.65, which looks ok. But control for the fact that prices have gone up around 15% in this period and the real weekly wage of the average America is - guess what? - $480.40. So, on our calculations, average americans haven't gained one cent under President Bush. In fact, they've lost one.

But perhaps the most perceptive comment on all of the week's economic news comes nestled in an editorial in this morning's Financial Times. They note that the President economic push this week wasn't just to battle for a tie on his economic record in the run-in to November. In fact, something more important is afoot, something central to his legacy as a President and the governance strategy of conservatives more generally.

"The president's chief aim was in fact to bolster his campaign to convert the temporary tax cuts enacted in 2001 and 2003 into permanent reductions beyond their 2010 expiry date. It is smart politics that sends two messages: first, the numbers reassure fiscal conservatives alienated by the administration's record of rising deficits; and, second, Mr Bush's interpretation of the data rallies supply-side radicals who believe America's thumping GDP growth has been caused by the tax cuts."

As Rob Shapiro wrote yesterday, its difficult to know where to begin. The changed estimates can't have been the result of tax policy, because tax policy is unchanged since they were first made. They could well have been the result of fiddled figures, as both Rob and Brad De Long argued this week. And it couldn't be clearer after this week that the tax cuts do not pay for themselves. Yet, the more important battle is whether the tax cuts will be made permanent when they expire in 2010. If they are most estimates suggest that their costs will go through the roof - 3.3 trillion through 2017, says the Congressional Budget Office - significantly worsening the budget deficit for whoever is unlucky enough to pick up the President's economic tab. Not allowing this to happen must be among the most important economic fights of the next two years.

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