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Link Between Taxation, Unemployment Is Absent
By Jonathan Weisman
When President Bill Clinton raised taxes in 1993, the unemployment rate dropped, from 6.9 to 6.1 percent, and kept falling each of the next seven years. When President Bush cut taxes in 2001, the unemployment rate rose, from 4.7 to 5.8 percent, then drifted to 6 percent last year when taxes were cut again.
"The bottom line is, cuts in taxes lead to economic growth, which leads to improvements in the labor market to levels that are better than they otherwise would have been," said Mark J. Warshawsky, acting assistant Treasury secretary for economic policy.
But finding the proof in historical data is difficult, conceded Eric M. Engen, a Republican economist at the American Enterprise Institute.
In 1981, President Ronald Reagan again slashed taxes. Taxation fell from 19.6 percent of the economy that year to 17.4 percent in 1983. The unemployment rate, however, rose over that period, from 7.6 percent to 9.6 percent. By 1989, taxation had drifted upward again, to 18.3 percent of the economy, but unemployment had fallen to 5.3 percent.
The Clinton tax increase was focused on upper-income households, but it included a sizable increase in the earned income credit for low-wage workers, making it more profitable for them to find and keep jobs.
The issue has become particularly relevant as Congress debates budget resolutions that would extend tax cuts that otherwise would expire over the next five years, and as Bush clashes daily with Sen. John F. Kerry (Mass.), his Democratic rival, over tax policies and job creation. The Senate voted Wednesday night to place new barriers on future tax cuts.
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By Jonathan Weisman
When President Bill Clinton raised taxes in 1993, the unemployment rate dropped, from 6.9 to 6.1 percent, and kept falling each of the next seven years. When President Bush cut taxes in 2001, the unemployment rate rose, from 4.7 to 5.8 percent, then drifted to 6 percent last year when taxes were cut again.
"The bottom line is, cuts in taxes lead to economic growth, which leads to improvements in the labor market to levels that are better than they otherwise would have been," said Mark J. Warshawsky, acting assistant Treasury secretary for economic policy.
But finding the proof in historical data is difficult, conceded Eric M. Engen, a Republican economist at the American Enterprise Institute.
In 1981, President Ronald Reagan again slashed taxes. Taxation fell from 19.6 percent of the economy that year to 17.4 percent in 1983. The unemployment rate, however, rose over that period, from 7.6 percent to 9.6 percent. By 1989, taxation had drifted upward again, to 18.3 percent of the economy, but unemployment had fallen to 5.3 percent.
The Clinton tax increase was focused on upper-income households, but it included a sizable increase in the earned income credit for low-wage workers, making it more profitable for them to find and keep jobs.
The issue has become particularly relevant as Congress debates budget resolutions that would extend tax cuts that otherwise would expire over the next five years, and as Bush clashes daily with Sen. John F. Kerry (Mass.), his Democratic rival, over tax policies and job creation. The Senate voted Wednesday night to place new barriers on future tax cuts.
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