Introduction
This article examines the effects of recent tax cuts as a
short-term economic stimulus and is the fifth in a series
that summarizes and evaluates tax policy in the Bush
administration.1 A particular goal for each of the 2001,
2002, and 2003 tax cuts was to spur the economy in the
short term.
According to the president's chief economic adviser,
N. Gregory Mankiw, the economy has done better in the
short term with the recent tax cuts than it would have
without: "If we had left taxes exactly as they were when
the president took office, many, many more people
would be unemployed today. What I'm saying is sort of
standard textbook economics" (Catts 2004).
Mankiw's statement is narrowly and carefuly framed.
It does not address the real questions associated with the
short-term effects of the tax cuts, and should not be
interpreted as evidence that the tax cuts represent effective
short-term stimulus for at least two reasons. First, the
statement compares the tax cuts to doing nothing,
whereas other policy changes — including differently
structured tax cuts and spending programs — were and
are relevant options. Second, Mankiw's statement focuses
on only whether any stimulus was provided. But in an
economy with excess capacity, such as the U.S. economy
between 2001 and 2004, many forms of fiscal loosening —
whether a tax cut or spending increase — can spur
aggregate demand and therefore provide a short-term
boost to the economy.
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