How to lie about tax cuts

The House Republicans cite an Obama economic adviser as the authority for their claim that tax cuts, and only tax cuts, will result in millions of new jobs. Here's why they're wrong

Published January 28, 2009 9:24PM (EST)

Here's what appears to be the House Republican strategy going forward: lie, misrepresent, and obfuscate. And when you get called on it, just ignore reality and repeat yourself.

A Wednesday afternoon case in point: The Republican leadership is now declaring that their economic recovery plan, which consists primarily of tax cuts, will result in the creation of 6.2 million jobs in two years. As the authority for their claim, they cite none other than Christina Romer, President Obama's Chair of the Council of Economic Advisers.

From a press conference:

...We have an analysis by the president's senior economic adviser who also shows that tax cuts actually provide more immediate relief and more jobs than spending, so you get more -- a bigger bang for the buck.

Well, using the methods and economic models developed by the president's top adviser -- and when those are applied to our Republican plan, it shows the Republican plan could create as many as 6.2 million jobs over the next two years.

Now, let's just be clear about where these estimates come from, the nation's top economic adviser, the president's nominee to chair the Council of Economic Advisors, Dr. Christina Romer, and her peer-reviewed research.

Now, it is true that in their classic paper, "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," Christina Romer and her husband David Romer found that certain types of tax cuts in certain types of economic situations provided considerable "bang for the buck."

But as has already been endlessly hashed out in the econoblogosphere, their findings primarily applied to tax cuts that were enacted during periods when the economy was healthy. In other words, when the economy's normal job creation engine is plugging along nicely and companies are turning profits and unemployment is relatively low, a tax cut can provide an added stimulus.

But the Romers did not find the same was true when the economy was in recession. Explicitly: "Policymakers' efforts to adjust taxes to offset anticipated changes in private economic activity have been largely unsuccessful."

There is an intuitively obvious explanation for this, which will be familiar to anyone who has been reading How the World Works this week. In a recessionary economy, tax cuts do not necessarily encourage consumers to spend and businesses to hire. When confidence in the economy is low, people are inclined to pay off their bills and boost their savings. Tax cuts might provide a little more cushion for consumers and businesses to wait out the storm, but they are unlikely to incite a wave of euphoric shopping.

Pointing out, again that the House Republicans are misrepresenting the academic research on tax cuts is unlikely to make House Minority Leader John Boehner or Minority Whip Eric Cantor change their tune. But it might help to explain why after two consecutive walloping defeats for Congressional Republicans, the two men have little power to make their obfuscations change policy.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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