Last night I caught the last half of a PBS documentary on an influential economist whose name I didn’t catch. At the point where I joined the program, Jimmy Crater was president and the economy was in the dumps. What followed were the elections of Margaret Tatcher and Ronald Reagan, Maggie’s rapid dismantling of British socialism, massive tax cuts for the rich, rabid degregulation, and their overall indifference to those in need. The documentary ended in the early eighties with the two leaders declaring victory over their countries’ economic troubles and modern day interviews with Thatcher and Newt Gringrich discussing the greatness of the economic theories that got them there.

As the credits were rolling, I couldn’t help but think “Where’s the sequel?” They left off the part about Reagan raising taxes again, the S&L scandal, the stock market crash of ‘87, the record national debt, and the recession of the early 90’s. It felt like the equivalent of watching a documentary about WW2 that ends with Pearl Harbor.

It was odd timing to catch this documentary considering that today’s the day that Bush will be signing the second massive tax cut of his term :

Congress gave its final approval Friday to $330 billion in new tax cuts for families, investors and businesses, handing President Bush a victory despite sharply curtailing his plan for lifting the economy from its knees.

Families? I’m surprised they didn’t just say “this tax cut should deliver immediate relief to little old ladies, orphans, and puppies”.

Cute little puppies aside, it’s obvious that Bush sees himself as the inheritor of Reagan’s policies, but (as Jonathan Chait points out) it looks like George didn’t do any better in history than he did in English :

Just like George W. Bush, Ronald Reagan used his first year in office to enact a series of tax cuts tilted toward the well-off that helped plunge the nation into debt. For this, Reagan is remembered by both the right and left as an unflinching avatar of supply-side economics. But, in truth, Reagan reacted to the consequences of his 1981 tax cuts in a way that would have put him far out of step with Bush’s Republican Party. When the scope of the budget deficit became apparent, Reagan acceded to a series of tax increases in 1982 (in the midst of a severe recession, no less), 1983, and 1984. In 1986, reacting to complaints that his 1981 tax cuts opened too many loopholes for the rich, Reagan enacted a sweeping tax reform that liberals, including this magazine, hailed for making the tax code more progressive. Reagan’s record on taxes, in short, consisted of one year of unvarnished conservative ideological warfare followed by seven years of retreat and consolidation.

So where Bush’s only solution to economic problems seems to be cutting taxes, Reagan clearly realized that tax cuts weren’t the only solution. Despite the fact that tax cuts probably don’t spur growth, for the sake of argument, I’ll cede this point to the President (in his words) :

Our first challenge is to allow Americans to keep more of their money so they can spend and save and invest — the millions of individual decisions that support the market, that support business, and help create jobs.

So we need to give people their money back so they can spend it and reinvigorate the economy? Okay, fair enough. That being the case, what’s the best way to do this?

For most Republicans, this means trickle down supply-side economics in the form of massive tax cuts for the wealthy. If reinvestment was really the goal, wouldn’t a tax credit for businesses who reinvest profits in their companies and create more jobs make more sense than a tax cut? For all the talk about how much a tax cut will lead to the creation of more job, the GOP doesn’t ever seem to be willing to put our money where their mouth is.

If we want a fast economic recovery, wouldn’t it make sense to give the money to the people who are likely to get it in circulation? The poor are more likely to spend the money immediately than the rich. Even many conservative economists agree to this point :

A reduction in tax rate aimed at individuals in the lower income brackets is most likely to result in increased economic activity. These individuals are much more likely to spend the additional disposable income, especially if they believe the change is permanent, thereby meeting the stimulus package?s objectives.

Individuals in the upper income bracket are less likely to spend and more likely save any increase in income from a tax rate cut. Individuals in the upper income bracket rarely deny themselves goods and services they desire. The upper income bracket is already saving a significant portion of their income and would likely save, rather than spend, any increase in income resulting from a tax rate cut.

Personally, I think a more sensible solution would be to give the tax cuts only to the poor and middle class families who need help the most.

Of course I can already hear the complaints now. “It’s not fair. The rich pay the majority of taxes, it’s only fair for them to get majority of the money back.” While that may be true, this tax cut is not a gift, it’s an attempt to jump-start a stagnant economy. It’s not a matter of who deserves a refund more, it’s a matter of who’s more likely to spend the money. There are a variety of social programs that primarily benefit the poor that have been cut to make way for this tax cut. Asking the poor to sacrifice so the rich can have more money is what’s really unfair.