William P. Kucewisz writes in today's National Review Online a very interesting article describing how the Bush tax cuts, particularly the June, 2003 cuts, rallied the capital markets and generated big increases in investments. He reports that "net nonresidential capital formation has risen 63%" since the enaction of the June 2003 tax cuts.
Here is his opening paragraph:
"The Bush tax cuts of 2 years ago continue to lay the foundation for a prolonged economic expansion, owing to a conspicuous shift in private expenditures from consumption to investment. The June 2003 tax cuts, in fact, are functioning precisely as promised — boosting GDP to the benefit of all Americans, regardless of income. It’s one of the marvels of supply-side fiscal policy. By raising the incentive to invest, marginal tax-rate reductions augment the ratio of financial capital to labor capital, thus raising labor productivity and, in turn, accelerating growth."
He compares this phenominal growth to those of the Clinton years, writing,
"Since mid-2003, annualized nonresidential capital growth has averaged nearly 30 percent, far surpassing the Clinton-era mean of 13 percent and the 1946-2004 norm of 8 percent."
He also mentions one our favorite topics, that the information technology boom of the 1990's, and the subsequent capital investment made by industry, not the Clinton tax increases of 1993 that brought about the "boom" of the 1990's, writing,
"The pronounced rise in net private nonresidential capital formation in the 7-year period commencing in 1993 wasn’t initiated by the Clinton tax hikes of that year, which eventually caused federal revenues to exceed 21.1 percent of nominal GDP, an all-time high, versus a 1946-2004 mean of 18.1 percent. The investment boom of the 1990s was instead initiated by an exogenous factor — i.e., the IT revolution. A mighty Schumpeterian gale swept across the business world in the form of PCs, the Internet, and other information technology. Competitive pressures demanded that businesses invest heavily in IT. Ergo, private fixed non-housing investment climbed in the last decade despite the 1993 tax increases."
He added this:
"Democrats, however, aided by a pliant (and largely economically illiterate) Washington press corps, continue to foist the fiction that the Clinton tax hikes produced the 1990s boom by closing the federal budget deficit. This is patent nonsense. For a start, they’ve got the cause-effect deficit-GDP relationship backwards: The deficit closed because economic growth quickened, not the other way ’round."
Read the whole article here.