Taxing and Spending

David Brooks wrote an op-ed article today largely offering an apologia for the Bush Administration's tax-cut policies. Controversially, Brooks asserts:

"The third argument is that the cuts should have been temporary. White House folks argue persuasively that given the rolling series of blows — the bubble, the corporate scandals, the war jitters — a short-term stimulus would not have worked. "You were not going to get a sustained recovery from something temporary," Friedman says. "

Josh Marshall over at Talking Points Memo rightly calls this reasoning on several grounds and persusasively argues:

"The true reason and impetus for the Bush tax cut was not economic -- in the sense of reactions to cyclical developments in the economy -- but ideological. For the authors of the plan, the tax cut was a justification in itself; the White House simply grasped on to whatever explanation made most sense at the given moment to advance it. That's why a plan devised at the height of a boom -- to cull an oversized surplus -- made equally great sense when the economy was in free-fall. The policy was driving the rationale, not the other way around. "

Then, over at TNR, Noam Scheiber jumps on to amplify Marshall's points, observing that:

Second, the temporary versus permanent logic only really applies to cuts enacted during the recession. Many of the provisions of the 2001 tax cut weren't slated to be enacted until years down the road. Take the repeal of the estate tax, for example. According to the law passed in 2001, that's not supposed to take effect until 2010. But it's hard to see how a repeal of the estate tax in 2010 would encourage people to spend more money in 2001.

If I can pile on too, it seems that Scheiber feels his way close to a REALLY big issue (an elephant in the room?) without making the point by choosing the example of the estate tax.

By what rational basis would we presume an estate tax inhibits short-term consumption? To the extent that one knows all assets above the estate-tax threshold will deliver pennies on the dollar to one's heirs, the tax itself seems inherently stimulative. Why save dollars for Uncle Sam, as we've so often been asked? In a similar way, the dividend tax made it relatively more lucrative to invest in business infrastructure rather than dividends... admittedly translating corporate profits into personal income rather than business expenditures might be more economically efficient. But that's a bigger case to make. As far as I can see it, there's nothing inherently stimulative in several major components of the Bush tax cut packages...

I'm not sure if the cumulative effect undermines Brooks' point or not. But it surely weakens it... it seems most of Bush's tax cuts are geared towards rewarding saving... and last I checked, increasing the savings rate is not the standard response to a looming deflationary crisis...