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  • azalphainvestor azalphainvestor Jan 31, 2006 9:32 AM Flag

    Lest We Become Confused

    Wanted: A Wary Audience
    Published: January 31, 2006

    When President Bush gives his State of the Union address tonight, expect to hear a renewed call for setting the administration's first-term tax cuts in concrete, combined with warnings that letting the cuts expire would retard economic growth. Nothing could be further from the truth.

    As proof of tax cuts' ability to spur the economy, Mr. Bush generally cites productivity growth, job creation and the rise in personal income. Productivity has indeed been stellar, and supply-siders claim that is because tax cuts have led to investment, which led to higher productivity. But business investment has been flat for five years. Meanwhile, the benefits of productivity growth have been concentrated among the wealthy. So tax cuts haven't unleashed investment, but they have contributed to inequality.

    Job growth during the Bush-era recovery has been worse, by far, than in any comparable economic upturn since the 1960's. It would take some 500,000 new jobs a month every month this year just to equal the second worst job-creation record in the modern era. And while working Americans are laboring harder, hourly wages and weekly salaries � the financial lifeblood of most Americans � have been flat or falling, after inflation, since the middle of 2003.

    That last inconvenient fact isn't likely to stop Mr. Bush from bragging about rising "real after-tax income." Besides paychecks, that much-cited statistic includes things like bonuses, stock dividends and health insurance.

    Dividends flow mainly to the top 5 percent of the income ladder, and health benefits, while valuable, are increasingly provided in lieu of salary. So the fact that personal income, writ large, is up "by 7 percent since I've been your president," as Mr. Bush boasted recently, isn't a measure of what is in most Americans' pockets. (Besides, a 7 percent gain is hardly worth bragging about, since the average from other comparable recoveries is 12.5 percent.)

    Mr. Bush bristles at the oft-repeated criticism that cutting taxes on dividends and capital gains mainly benefits the wealthy. That's odd, because the criticism is simply a statement of the obvious, given the facts: almost half of all dividends are earned by people making more than $200,000, and more than half of all capital gains are earned by people with incomes over $1 million. "


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