A Little Modesty, Please
Bush's tax cut didn't cause the economic recovery.
Every administration wants to toot its own horn when times are good. But there are more and less intelligent ways of doing so. Overselling the tax cut is yet another sign that this White House is incoherent in its economic thinking. Earlier this year the president bizarrely described his administration's philosophy as "part Keynesian, part supply side." That's a little like being part carnivore, part vegan. In any case, the Keynesian part seems to be dominant. Just one example: After September 11, a capital gains tax cut as part of an economic stimulus plan was well within the administration's reach. The White House economic team not only shunned the idea but made fatuous arguments that this might depress the stock market. It would have had precisely the opposite impact.
The White House does actually have a compelling story to tell about how the president's policies have helped restore economic growth. But it's not a story about the puny tax cut. No, it's his masterful handling of the war. Markets abhor risk, uncertainty, and threats to global commerce. Confidence in Bush's war leadership has reduced the investment risk premium associated with the grave new threat of terrorism. One of the underappreciated causes of the explosive economic recovery in the 1980s was Reagan's unwavering commitment to defeating the Evil Empire. Similarly, the investment climate has turned bullish--at least for now--largely because the investor class in America trusts Bush to contain and defeat the forces of terrorism around the globe.
That investment climate would turn a whole lot more bullish if the Bush tax rate cuts were made effective immediately (not in five years) and made permanent (they're now set to expire in 2011). Republicans should keep up the fight for this common sense stimulus policy. That won't happen until the White House stops congratulating itself for the wrong things.
Stephen Moore is a senior fellow in economics at the Cato Institute.