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No solid evidence that tax cuts created jobs
U.S. Rep. Jason Smith sent out a tweet last month paralleling job growth with tax cuts, citing the George W.Bush, Reagan and Kennedy administrations.
The tweet, sent Nov. 13, championed the House’sTax Cut and Jobs Act: "America needs the #TaxCutsAndJobsAct. Check out the record of #jobs created by #TaxCuts 7.8 million new jobs after Bush’s 2003 tax cuts 12 million new jobs after Kennedy's 1964 tax cuts 14.8 MILLION new jobs after Ronald Reagan’s tax cuts in 1981."
We reached out to Smith’s office to see where he got his information, and spokeswoman Maggie Starks said the numbers came from the White House. The White House looked at how jobs grew over a five-year period after each president signed tax legislation.
We wanted to know if the administrations’ respective tax cuts really created this many jobs.
How did they get their numbers?
The White House started calculating job growth in January of the year the tax cuts were enacted, regardless of the laws not being signed until February 1964, August 1981 and May 2003.
President George W. Bush signed two large tax cuts into law during his time in office: The Economic Growth and Tax Relief Reconciliation Act of 2001, and the Jobs and Growth Tax Relief Reconciliation Act of 2003.
Smith cited onlythe latter tax reform law, which cut taxes on individual rates, capital gains, dividends and estate, among other changes.
The law went into effect at the end of May 2003, but the White House started its calculations in January. In the first month of 2003, U.S.employment numbers were at 130.6 million jobs; five years later, there were 138.4 million jobs. This is an increase of about 7.8 million jobs, which is what Smith (and the White House) said were created.
President John F. Kennedy's brainchild, the Revenue Act of 1964, was signed into law by President Lyndon B. Johnson on Feb. 26, 1964. It reduced individual tax rates and top corporate tax rates, phased in a faster corporate estimated tax payments and created a minimum standard deduction.
We started looking at job growth beginning in January of that year like the White House did. In January 1964, there were 57.5 million jobs available. Fast forwarding five years, there were 69.4 million jobs, showing an increase of about 12 million jobs, right on par with Smith’s claim.
In August 1981, President Ronald Reagan signed the Economic Recovery Tax Act of 1981 into law. A main component of the law was a phased-in 23 percent cut in individual tax rates over three years, which brought the highest marginal tax rate from 70 to 50 percent.
In January 1981, the start of the year the tax cuts went into effect, there were about 91 million jobs, according to the Bureau of Labor Statistics. The same time five years later, the number was at 98.7 million jobs. This is an increase of 7.7 million jobs, over 7.1 million less than Smith claimed.
Taxes aren’t the only aspect that affect an economy, and it’s hard to prove if they can have that big of an impact on jobs, said Chris Edwards, the director of tax policy studies at the Cato Institute.
"At any particular time there are many forces affecting the economy — tax policy, regulations, monetary policy, the economic growth of our trading partners, energy prices, etc.," he said.
Edwards said the tax cuts probably did help businesses create jobs, but there was so much else going on during those time periods that no economist could pinpoint the overall jobs picture to one policy change.
Aparna Mathur, a resident scholar at American Enterprise Institute, echoed Edwards’ statement, and said, "it’s hard to establish between tax cuts and the number of jobs created because there are too many confounding factors associated with tax changes that could have led to the job growth."
She also said that putting a precise number to job growth associated with any particular tax reform or tax change is fraught with uncertainty.
Lee Price, former chief economist of the House Appropriations Committee and fellow at the Institute for Policy Studies, said although jobs went up in the years after the named tax cuts, one could also argue that the tax hikes of 1993 and 2010 were responsible for the creation of millions of jobs for the following several years. The Institute for Policy Studies is a progressive think tank in Washington D.C.
Price also noted that the 1981 Reagan tax cut was followed by substantial tax hikes in subsequent years that didn't appear to slow job growth.
Smith claimed that the Bush, Kennedy and Reagan administrations signed into law tax cuts that created millions of jobs by saying, "America needs the #TaxCutsAndJobsAct. Check out the record of #jobs created by #TaxCuts 7.8 million new jobs after Bush’s 2003 tax cuts 12 million new jobs after Kennedy's 1964 tax cuts 14.8 MILLION new jobs after Ronald Reagan’s tax cuts in 1981."
Jobs were created after each of the laws went into effect, but some of Smith’s numbers were off, and experts agree that there are too many factors that create jobs to simply say tax cuts are the reason.
We rate this statement Mostly False.
"Corporate Tax Cuts Boost CEO Pay, Not Jobs," Institute for Policy Studies, December 1, 2017.
"Distributional Effects on the ‘Tax Cuts and Jobs Act," The Joint Committee on Taxation, November 28, 2017.
"Economic Recovery Tax Act of 1981," Congress, December 1, 2017.
Email interview with Aparna Mathur, American Enterprise Institute, December 4, 2017.
Email interview with Chris Edwards, director of tax policy studies, Cato Institute.
Email interview with Lee Price, former chief economist of the House Appropriations Committee and associate fellow at the Institute for Policy Studies.
Email interview with Sarah Anderson, Global Economy Project Director, Institute for Policy Studies.
"In Milwaukee op-ed, Donald Trump overstates economic impact of Ronald Reagan corporate tax rate cut," PolitiFact Wisconsin, December 4, 2017.
Jason Smith, tweet, November, 13, 2017.
"Job gains strong in 1987; Unemployment rate declines," Bureau of Labor Statistics, December 1, 2017.
"Jobs and Growth Tax Relief Reconciliation Act of 2003," Government Publishing Office, December 1, 2017.
"John Boehner says Bush tax cuts created 8 million jobs over 10 years," PolitiFact, November 27, 2017.
"Major enacted tax legislation, 1960-1969," Tax Policy Center, December 1, 2017.
"Tax Cut and Jobs Act," November 27, 2017.
"Updated Details and Analysis of the 2017 House Tax Cuts and Jobs Act," Tax Foundation, November 28, 2017.
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