Snapshot for May 7, 2003.

Bush’s dubious job claims

President Bush claimed that his tax cut proposal would create 1.4 million additional jobs by the end of 2004. It is important to note, however, that these 1.4 million additional jobs are an increase in job growth compared to what would happen with no change in policy. In other words, the White House is saying there would be some job growth with no tax cut but greater growth with it. What gets overlooked in these claims is what happens to job growth after 2004 under the Bush plan.

To be more specific, the Council of Economic Advisers (CEA) estimated that the total expansion of the employment level over the next 19 months would be 4,110,000 without the tax cuts; proponents of the Bush tax cut claim that 1.4 million more jobs–for a total of 5,510,000–will be created in that period. By 2007, however, the job picture changes dramatically: the CEA estimates that total employment growth would be 11,260,000 with no tax cuts and 11,950,000 under the Bush tax plan, for a difference of only 690,000.

Why, after five years, does 1.4 million new jobs shrink to 690,000? The reason is that the effect of the tax cut on employment is negative after 2005 (see the figure above, in which levels shown are end-of-year totals). In the White House scenario, the employment level after 2004 is still higher than under the no-tax cut scenario, but the increases are smaller. CEA staff states that, after 2007, the employment level would converge back to the no-tax-cut level. In the end, all of the extra job growth is temporary.

The tax bill passed by the Congress would be expected to have an even larger effect on employment over the next two years, since its overall size in 2003 and 2004 is 48% larger than what the president proposed. Whether this sort of tax cut will be so effective in generating jobs, and how long these extra jobs last, remains to be seen.

Sources: “Strengthening America’s Economy: The President’s Jobs and Growth Proposals,” Council of Economic Advisers, February 4, 2003.

“Jobs and Growth Tax Relief Reconciliation Act of 2003”, Fiscal Years 2003 – 2013, Estimated Budget Effects of the Conference Agreement for H.R. 2, Joint Committee on Taxation, May 22, 2003, JCX- 55- 03. http://www.house.gov/jct/x-55-03.pdf.

This week’s Snapshot by EPI economist Max B. Sawicky.

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