TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, October 8, 2012

WaPo Awards Three Pinocchios to Obama’s Claim That the Bush Tax Cuts Led to the Economic Crisis

Washington Post Fact Checker: Obama’s Claim That the Bush Tax Cuts Led to the Economic Crisis:

“Now Governor Romney believes that with even bigger tax cuts for the wealthy, and fewer regulations on Wall Street, all of us will prosper. In other words, he’d double down on the same trickle-down policies that led to the crisis in the first place.”

While some on the left have speculated about some kind of Rube Goldberg phenomenon — that the tax cuts put so much money in the pockets of the rich that they had nothing to spend it on but risky and exotic financial instruments — we are unaware of any respected academic study making this link. The Bush tax cuts have been amply criticized for costing too much and generating too little economic growth, but that’s entirely different from causing the Great Recession. Indeed, the official government inquiry, the 631-page final report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, makes no mention of the Bush tax cuts. ...

It is time for the Obama campaign to retire this talking point, no matter how much it seems to resonate with voters. The financial crisis of 2008 stemmed from a variety of complex factors, in particular the bubble in housing prices and the rise of exotic financial instruments. Deregulation was certainly an important factor, but as the government commission concluded, the blame for that lies across administrations, not just in the last Republican one.

In any case, the Bush tax cuts belong at the bottom of the list — if at all. Moreover, it is rather strange for the campaign to cite as its source an article that, according to the author, does not support this assertion.

We nearly made this Four Pinocchios but ultimately decided that citing deregulation in conjunction with tax cuts kept this line out of the “whopper” category. Still, in his effort to portray Romney as an echo of Bush, the president really stretches the limits here.

Three Pinocchios

(Hat Tip: Glenn Reynolds.)

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That's the liberal media helping Obama. He should have gotten four Pinocchios rather than just three.

Posted by: Woody | Oct 9, 2012 8:50:15 AM

Fair enough, I guess. The crisis was touched off by the collapse of the collateralized mortgage market.

Eight years of completely irresponsible fiscal and tax policy in the form of two wars completely financed by debt (as opposed to our traditional practice of financing wars 50% current taxes) and the enormous fiscal stimulus in the form huge tax cuts during a time when the economy was already overheated certainly encouraged the speculation and put us behind the eight ball when it all hit the fan. The Medicare drug benefit was nearly as expensive as Obamacare but also completely unfunded, adding further fuel to the fire, although this is a relatively minor matter.

But the WaPo is right. The immediate cause of the collapse wasn't directly related to these policies.

Posted by: Jim Harper | Oct 9, 2012 11:45:17 AM