The liberal banshees on the presidential campaign trail may be technically right that so far the Bush tax cuts have not produced a vigorous recovery. But hopefully even the most partisan left-wing economists recognize that you simply can't judge the full effects of a broad-based tax-cut plan that's less than two months old.
The president's tax-cut package, which became law only in late May, slashes marginal rates on individual incomes, investor dividends and capital gains. The combined effect of this tax relief reduces capital costs and raises investment returns by over 40 percent -- making it the largest investment tax-cut program since the Civil War income tax was repealed in 1872.
Yes indeed, Ulysses S. Grant was America's first supply-side president (he also took us back on the gold standard).
For the economic historians among you, the administrations of Warren Harding and Calvin Coolidge, guided by Treasury Secretary Andrew Mellon, constituted the second supply-side presidency. The third supply-side period was triggered in the early 1960s by John F. Kennedy. The fourth occurred under Ronald Reagan in the 1980s. The fifth was -- if you can believe it -- Bill Clinton's second term. And, of course, George W. Bush has turned in the sixth supply-side tax-cutting administration.
The point of all this is simple: Prior to George W. Bush, all these other supply-side presidencies led directly to lengthy periods of strong economic growth and low unemployment. So, if Bush's critics show a wee bit more patience, they will see that once again -- for the sixth time in American history -- across-the-board tax reduction has expanded the nation's economic pie and created a rising tide that lifts all the employment boats.
While we wait for the latest economic miracle to unfold, it is worth reviewing why the Bush tax cuts are necessary.
Thus far, the nation has come out of recession with seven quarters of relatively slow economic growth (assuming that this year's second quarter will come in around 2 percent at an annual rate). This leaves seven recovery quarters with an average growth of only 2.6 percent yearly, a truly anemic pace when compared with past recoveries. Even worse, the last three quarters look to come in at an average growth rate of only 1.6 percent annually. Normally, the first two years of a cyclical recovery range between 5 percent and 6 percent growth.
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