Link Between Taxation, Unemployment Is Absent
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.</br></br>It has become conventional wisdom in Washington that rising tax burdens crush labor markets. Bush castigated his political opponents last week for "that old policy of tax and spend" that would be "the enemy of job creation." "The fact of the matter is, we have much higher rates of employment today than we did in 1954, but our level of taxation is considerably higher," said Gary Burtless, a labor economist at the Brookings Institution. "You simply can't look at total taxation to find employment levels."</br></br>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.</br></br>Republican economists -- and White House officials -- contend that higher marginal tax rates stifle business investment, hiring and the desire to work.</br></br>Senior Treasury Department officials said the correlation is "standard macroeconomics" dating to the Kennedy administration. Last year's surge in economic growth can be timed to the week that tax refunds arrived in American mailboxes, they said.