Tax Cut Claims Gain Criticism As Employers Shed More Jobs

By: Mike Allen and Jonathan Weisman

Three months after passage, President Bush's $350 billion tax cut package is eliciting fresh criticism that it has failed to stem nearly 20 months of job losses or produce a promised surge in employment.

The perils of presidential promises hit the White House anew when the Labor Department reported this morning that employers shed 93,000 jobs from payrolls in August. It was the seventh consecutive month companies had slashed payrolls, up sharply from the 43,000 positions lost in July. This time, the losses came just as the President's $350 billion tax cut package was showing up in consumers' pockets.

"Today's unemployment report shows we've got more to do", Bush said in a brief acknowledgement of the issue. But pointing to strong economic growth statistics, he later added his standard boast: "Tax relief is stimulating job creation all across the country."

Before the latest tax cut plan passed, White House economists had predicted it would add 1.4 million new jobs through 2004, on top of 4.1 million jobs that a growing economy would have generated anyway, a rate of 344,000 jobs created a month. By its own accounting, the Bush administration fell 437,000 jobs short of its own projections in August, a shortfall not lost on the President's critics.

"The administration sold the tax cuts as a solution to the jobs problem", said Lawrence Mishel, president of the Economic Policy Institute, a liberal think tank that tracks White House claims about job creation. "Just like the schools, the administration should be held accountable for performance."

The White House is sticking to its bullishness. N. Gregory Mankiw, chairman of the White House Council of Economic Advisers, said in an interview today that this summer's cuts in income, capital gains, and dividend tax rates have boosted consumer spending and business investment. He said that will ramp up business and consumer demand, ultimately leaving reluctant companies no choice but to hire more workers to meet that demand.

"That gets translated into job creation, with a lag", he said, counseling patience. "Firms often look to see their sales rising and production rising before they choose to hire new workers."

Job growth, he said, will begin to return "by the end of the year".

As Mankiw noted, the tax cut that Bush signed into law was considerably different - and considerably smaller over 10 years - than the $726 billion cut the President originally championed. But in the short term, the final version was more stimulative than the original, pumping $210 billion into the economy this year and next, compared with $154 billion initially envisioned.

The "lagging indicator" line was Republican mantra today from the White House to Capitol Hill. Bush called jobs growth "the last thing to arrive on the scene". Businesses tend to wait before laying off workers as demand falls, and they are slow to rehire as demand starts to rise.

But never has the lag between recovery and the creation of jobs been this long and this painful, economists say. The only other U.S. recession that was followed by such late and slow job growth came in 1991 and 1992, according to a new study by the Federal Reserve Bank of New York. That "jobless recovery" helped doom President George H.W. Bush's reelection, though job growth was actually flat.

Economists at Goldman Sachs dubbed this go-round the "job-loss recovery". The economy has grown each quarter at rates of between 1.3 and 5% since the recession officially ended in November 2001, but payrolls have fallen, by an average of 0.4% every three months, the New York Fed found.

That is not what Bush anticipated when he was stumping for his third tax cut in as many years. Not only did the President frame the tax cut as a jobs program, but also his Council of Economic Advisers left a paper trail. The council predicted that passage of the tax cut would produce 510,000 new jobs in 2003 and 891,000 in 2004.

Since the tax cut was signed in late May, employers have shed 225,000 jobs.

"Of all the broken promises of this President, the most hurtful has been the broken promise to create new jobs and protect the ones that exist", said Sen. Joseph I. Lieberman (D-CT.), who is hoping to unseat Bush in next year's presidential election.

Bush strategists have long known a weak economy could be as troublesome as it was for his father, but they had come to believe that the broad public approval of the President's handling of the war on terrorism would serve as an insurance policy. But Ed Sarpolus, an independent pollster in Michigan, said voter attention has shifted markedly back to the home front since the President declared an end to major combat in Iraq. And that shift has taken its toll.

In Sarpolus's most recent survey, only 33% of Michiganians said they were committed to the President's reelection, down from 40% three months ago. About 37% said they were committed to oppose him, with 19% on the fence.

"This is more than a flip; when it comes to the economy and jobs, it's real", Sarpolus said. "It's not that he can't win, but he's sure making it hard for himself."

The loss of more than 2.7 million jobs during Bush's presidency has become a refrain for the Democratic candidates, and Sen. John F. Kerry (MA) quipped during Thursday night's debate: "I think the only jobs created in the United States of America by George Bush are the nine of us running for President." Kerry promised in his announcement speech this week to "get back George Bush's 3 million jobs in my first 500 days as President".

Bush, who gave an interview to CNBC on Thursday as part of an initiative to talk about the economy, told the business channel that "these tax stimulations that we put out there" had "not only created more consumer confidence, but it's created demand, additional demand, and that's very positive".

"Rather than in quantifying numbers, all I want to do is create conditions necessary so that all eligible people can find work", said Bush, the first President with a master's degree in business administration. "I'm optimistic that that'll happen. I'm much more optimistic today than I was a year ago."