What tax change really creates jobs?

Question

During the Clinton years, even with higher taxes (as a percent of GDP), more jobs were created than were created under Bush, who both cut taxes (at least for the rich) and increased deficiet spending. So why didn't Bush policies create more jobs?

Answer 1

US economy during Clinton administration did enjoy a growth consequence of its own dynamics called by economist an expanse of aggregate supply, this growth was not the direct result of any economic measure of policy else the own activity of economic actors (companies, workers, local government) where the private initiative had a main role. Clinton Administration saw this economic growing and did not reduce taxes for to improve fiscal accounts.

In Bush Administration we do not find this kind economic growth an even we find lack of confidence of economic actors on it; we saw a reduction in taxes does not recover confidence and rates of growth were low.

All governments wants to create jobs because its grant to maintain the political power but some fails to reach it. The same measure does not have the same result when we apply in difference times or difference places, this is a reality of social science..

Answer 2

The tax changes that lower taxes.  If you lower taxes, you put money back into the economy to grow. Instead of locking it up in the Government for special pork projects that waste money.

Answer 3

Maybe NAFTA had more to do with the boosting of the economy during the Clinton administration.

Answer 4

The short answer is that the Clinton and Bush administrations have very little to do with job creation, other than via direct spending and federal hiring. In fact, tax policy has less to do with overall job creation than economic climate - except when taxes are at the extreme (ie, 90% top bracket as in the 1960s).

It wasn't that Clinton created a great economy, but rather that he happened to be president during a great economy. Think about it - what did Clinton do to foster such economic growth? You cannot name the unique mechanisms that Clinton used and that Bush didn't.

Let's get some data in here, first. These are taken from the Bureau of Labor Statistics (BLS), the national nonfarm employment data series.

Bill Clinton entered office in 1993 and exited in early 2001, so we'll say that Clinton is responsible for jobs through 2000. George W Bush entered office in 2001 and the last available year of data is 2007.

Year        Total Employment     Government Employment

1993          110,844,000                    18,786,000

2000          131,785,000                    20,790,000

2001          131,826,000                    21,118,000

2007          137,623,000                    22,203,000

Total "Gain" 1993 to 2000: 20,941,000 or 19%

Government "Gain" 1993 to 2000: 2,004,000 or 10.7%

Total "Gain" 2001 to 2007: 5,797,000 or 4.4%

Government "Gain" 2001 to 2007: 1,085,000 or 5.1%

So what did Clinton do that Bush didn't? The first difference is tremendous growth in the size of the government sector.

It should also be noted that Clinton's economic stimulus didn't help everyone. For every dying rust belt community that blames Bush for losing its factory, there's a dying military community that blames Clinton for closing a military base.

Consider also that in the wave of economic panic in the late 2000s, companies began trimming their most experienced off the payrolls, offering early retirement and buyout packages. This accounts for a good portion of the drop - I know that it is part of the reason why I got my first job at the period.

Let's compare their economic policies:

Monetary policy: both left the Fed alone to pursue independent and stable growth. Inflation is a problem that Bush has to deal with, while Clinton's was more of deflation (especially in the late 1990s, following the Asian, Russian and Mexican currency crashes that reduced worldwide demand).

Trade policy: both supported international trade treaties to boost exports and bring in cheaper imports. Both also supported China as MFN (Most Favored Nation). Both supported GATT/WTO, NAFTA and CAFTA (though Clinton later renegged on his support).

Tax policy: here's a big difference. Clinton raised taxes, Bush cut taxes. Clinton had a budget-cutting Congress, and the two balanced the budget well together. Bush had a budget-busting Congress (and increasing military expenditures), and so we're in deficit. You cannot give credit or blame for tax or budget policy to the President without the Congress because the Congress has effective oversight.

So how does a high tax policy help create jobs? It doesn't. But in the terms that we generally talk in American politics, a liberal's high taxes aren't substantially higher than a conservative's low taxes in terms of having economic impact.

You won't work less because you're paying 40% instead of 35% on your taxes. You'll spend less to some extent. Where trickle-down economics kicks in is when you're talking the difference between 20% tax and 80% tax.

The Bush Administration began with recession - the hangover of the stock market bubble that welled during the Clinton years. Neither President could have stepped in without cries of market interference. Neither president should have stepped in.

Clinton happened to preside over a period of new financial sophistication. The internet opened up new businesses. The stock markets were ripe for new investment and IPOs reached a historic peak during his administration - not because of his administration. Discount brokerages allowed workers to become day traders, or at least to more fully participate in the financial markets. Millions were made in the late 1990s - and lost in the early 2000s when the bubble burst.

Statistics from the BLS will verify that job growth in the Clinton years was primarily via the financial and tech sectors - and that job loss at the end of the Clinton years (and beginning of the Bush years) was primarily in these two sectors as well. It is co-incidence, not causation.

Consider that every two-term President (with the exception of Gerald Ford) presided over an expansion and a recession. Ford, it should be noted, presided for only 6 years.

I'll offer one last statistic for the purposes of comparing tax policy.

A 2000 survey by the BLS of before-tax and after-tax income found that 31% of American households earned less than $20,000, and the median after-tax income was $41,532 The same survey, conduc