(By Glenn Kessler, Washington Post, 01 October 2012)
“This election to me is about which
candidate is more likely to return us to full employment. This is a clear
choice. The Republican plan is to cut more taxes on upper income people and go
back to deregulation. That is what got us into trouble in the first place.” —
Former president Bill Clinton, in an Obama
campaign ad running since August
When two different people give virtually
the same message in two different ads, it’s a good bet that the language has
been carefully poll-tested. Both President Obama and former president Bill
Clinton assert that Mitt Romney wants to cut taxes for the wealthy and cut
financial regulations — which they suggest is a recipe for another economic crisis. The name “George W. Bush” is never mentioned
but is certainly implied. This leads to the question: Did the Bush tax cuts
cause the economic crisis?
We’ve been interested in the Clinton
comments for some time and never quite got a satisfactory response from the
Obama campaign. But Clinton used the vague word “trouble,” which could be
broadly defined as also meaning higher deficits. (Clinton’s staff did not
respond to queries about what he meant.) Certainly the Bush tax cuts did play
some role in higher deficits, though, as
we have noted, increased spending played a bigger role. But Obama is not vague at all. He highlights
the tax cuts and then says the “same trickle-down policies” — Democratic code
for tax cuts for the wealthy — led to the “crisis.” The campaign’s back-up
material labels that as “economic crisis,” thus leaving no ambiguity about his
reference.
The Facts
We should stipulate at the outset that
Romney adamantly rejects the idea that he has proposed more tax cuts for the
wealthy. His plan would cut tax rates, but also eliminate tax deductions, which
he says would make the plan revenue neutral. But no one has proven that his
numbers add up, and the respected nonpartisan Tax Policy Center concluded that the available details on the Romney
plan suggest taxes would decrease for the wealthy but rise for the middle
class. Romney has
advocated repealing the Dodd-Frank financial regulation bill. As for the role
of deregulation in the crisis, there certainly has been news reporting
showing that the Bush administration generally took a hands- off approach to
regulating financial institutions.
But others would note the irony of Clinton
citing the perils of deregulation under Bush because he also is culpable. Clinton
signed into law a repeal of the Glass-Steagall law that separated commercial
and investment banks — a policy shift that some
have said also played a role in the economic crisis. Moreover, Clinton also
signed into law the Commodity Futures Modernization Act, which essentially
removed derivatives contracts from regulatory oversight. By
many accounts, derivatives, such as the credit default swap, were at
the heart of the financial crisis. Indeed,
Clinton has
admitted that he was given wrong advice about the need to regulate
derivatives contracts. “I think they were wrong, and I think I was wrong to
take” their advice, Clinton said of his economic advisers. The Dodd-Frank bill tightened
regulations on derivatives contracts, thus reversing the decision that Clinton
— not Bush — had made.
While one can argue whether deregulation
under Clinton or Bush played a bigger role in the financial crisis, the notion
that the Bush tax cuts “led” to the 2008 crisis is especially puzzling. The
campaign’s back-up material for the Obama ad cites only one source — a column
by our colleague Ezra Klein. Here is how it is presented:
ROMNEY WOULD DOUBLE DOWN ON THE POLICIES
THAT LEAD TO THE ECONOMIC CRISIS
Washington Post’s Ezra Klein: “Reading
Romney’s Policies, You Would Never Know That The Nation Is Still Facing High
Unemployment Rates Or That It Just Came Through The Worst Financial Crisis In A
Generation … There’s Nothing In His Campaign Platform That Couldn’t Have Been
In Bush’s Platform. In Fact, Most Of It Was.
Reading Romney’s policies, you would never know that the nation is still
facing high unemployment rates or that it just came through the worst financial
crisis in a generation. You certainly wouldn’t think we’d just emerged from a
decade in which large tax cuts and financial deregulation led to major economic
distress. This is not necessarily the fault of Romney’s advisers, who have
rethought elements of the Republican Party platform and have taken risks.
Mankiw, for instance, has eloquently argued for a tax on carbon emissions and
for a looser monetary policy. Hubbard has pushed efforts to encourage mass
refinancing. Vin Weber, another Romney adviser, was an advocate of the
Bowles-Simpson deficit-reduction plan. But Romney hasn’t gone for any of these
policies. There’s nothing in his campaign platform that couldn’t have been in
Bush’s platform. In fact, most of it was.” [Ezra Klein, Washington Post, 4/30/12]
There’s one problem though: the column
does not back up Obama’s statement about tax cuts. Klein mostly laments the
fact that, in his view, the Romney campaign does not appear to have new ideas
with which to confront today’s economic realities. Just to be sure, we checked with Klein, and
here is how he responded: “I am absolutely not saying the Bush tax cuts led to
the financial crisis. To my knowledge, there’s no evidence of that.” Klein is right. While some on the left have speculated about some kind of Rube Goldberg
phenomenon — that the tax cuts put so much money in the pockets of the rich
that they had nothing to spend it on but risky and exotic financial instruments
— we are unaware of any respected academic study making this link. The Bush tax
cuts have been amply criticized for costing too much and generating
too little economic growth, but that’s entirely different from causing the
Great Recession.
Indeed, the official government inquiry, the 631-page final report of the National Commission
on the Causes of the Financial and Economic Crisis in the United States, makes
no mention of the Bush tax cuts. The report, endorsed by every Democrat on the
panel, does cite deregulation, but 30 years of deregulation across multiple
administrations — not just deregulation in the Bush years. The Obama campaign said that Obama was
referring to all of Bush’s policies, not just tax cuts. We think that
distinction would be lost on ordinary people. Just like Clinton, Obama mentions
only two things: tax cuts and deregulation. He then adds that such
“trickle-down policies” led to the crisis — and “trickle down” is Democratic
pejorative for “tax cuts for the rich.”
Obama campaign deputy press secretary Kara
Carscaden defended the president’s remarks and issued this response: “While
Reagan made ‘trickle down’ famous for tax cuts, the theory is that economic
growth is driven by the top. Those like Romney who favor repealing Wall Street
reform share the same theory — roll back the rules because when a few people at
the top do very well, they will somehow pull the rest of us along.
“The tax cuts contributed to the crisis in
multiple ways, including by driving up the deficit, crowding out potential
investments that could have promoted sustainable, shared economic growth and
leaving the economy vulnerable to speculation-fueled bubbles and high
middle-class indebtedness. And they made it more difficult for the federal
government to respond to a crisis because it was already facing very high
deficits. “The president’s argument — that our
country is stronger when we invest in the middle class rather than cut taxes to
the top — is the broad, philosophic question facing our country right now.”
The Pinocchio Test
It is time for the Obama campaign to
retire this talking point, no matter how much it seems to resonate with voters.
The financial crisis of 2008 stemmed from a variety of complex factors, in
particular the bubble in housing prices and the rise of exotic financial
instruments. Deregulation was certainly an important factor, but as the
government commission concluded, the blame for that lies across
administrations, not just in the last Republican one. In any case, the Bush tax cuts belong at the
bottom of the list — if at all. Moreover, it is rather strange for the campaign
to cite as its source an article that, according to the author, does not
support this assertion. We nearly made
this Four Pinocchios but ultimately decided that citing deregulation in
conjunction with tax cuts kept this line out of the “whopper” category. Still,
in his effort to portray Romney as an echo of Bush, the president really
stretches the limits here.
Three Pinocchios
No comments:
Post a Comment