Potomac Fever: Republicans are wrong on the economy

Tuesday, March 3, 2009

History shows us that raising taxes during a recession does not deepen the downturn.

Charlie Ruff said...: "None of this is meant to defend Obama's tax increases. They must be judged on their own merits and in terms of the potential benefits of the programs they would fund."

I agree with this statement but unfortunately, Bartlett's article has some problems. -

Bartlett cites only two recessions and one of them is significantly different from today's economic crisis.

The recession under Reagan was artificially created by monetary policy to halt stagflation.

Also, the article notes that Reagan raised taxes starting in 1983. The US economy had positive economic growth starting in the 4th quarter of 1982. So we had a quarter of positive economic growth before the tax hikes kicked in. This makes sense. You want to pay off a deficit when the economy is growing.

Same timing issue with the allegations behind the Clinton tax hikes. The US economy saw negative growth only in the 4th quarter of 1990 and the first quarter of 1991. By 1993, the Savings and Loan Crisis was mostly over and the economy was recovering.

When you have a massive deficit paying off taxes makes sense during a period of economic expansion.

We are not in a period of economic expansion and there is no reason to believe that we will see economic expansion in 2009. Thus, we should not raise taxes.; March 3, 2009 at 12:23 PM

Potomac Fever