In the midst of a presidential campaign, the economy is usually front and center of the debate. And while the War on Terror may be uppermost on people’s minds this year, polls show that the economy is a close second.
So what should we make of all the rhetoric about the economy in general, and specifically about taxes and the deficit?
- First, a few facts to consider: Real economic growth averaged 3.9 percent in the first six months of the year. That’s a better rate than in 14 of the 24 years since 1980 and in 28 of 54 years since 1950.
- Second, six of the years in which real economic growth exceeded the current rate came in two, three-year spans, following major income tax cuts – 1964 and 1983.
- Third, the current deficit, projected to reach $445 billion this year, is 3.8 percent of gross domestic product. That’s the eighth highest total since 1980.
- Fourth, the years in which the deficit exceeded 3.8 percent of GDP followed both major tax cuts andmajor tax hikes.
There are two basic lessons from all these numbers. One, major tax cuts are followed by economic growth. And two, the effect of tax policy on deficits is by no means clear.
So when politicians say a lower deficit will help the economy, beware! And when they say tax hikes on the rich are a way to reduce the deficit, double beware!
They may be more concerned about getting your income than getting their facts straight.