What Jobs? What Growth?

President Bush and his fellow tax-cut salesmen have a stock reply when asked why they would drive the nation into long-term deficit in order to give a tax break primarily to the very rich. Don't worry, they say: The rich will invest their money, thereby creating economic growth and jobs and higher stock prices for less-rich people, who will pay more taxes and so reduce the deficit. Unfortunately, no matter how many times they change the ground rules for calculating the economic effects, the numbers still won't add up quite the way they hope. Their latest disappointment - not that it will deter them - comes in a little-reported but highly significant analysis by Congress's Joint Committee on Taxation.

To understand the importance, you have to go back to a recent Congressional Budget Office study that used the Republican-favored method of "dynamic scoring" but nonetheless found that the administration's tax and spending proposals would have, at best, a negligible effect on the economy. As he made the Sunday talk show circuit last weekend, Treasury Secretary John W. Snow was asked about this apparent setback. "I wish they had scored the tax cuts alone, because if they had scored the tax cuts alone, I think they would have had a different conclusion", Mr. Snow told ABC's George Stephanopoulos.

Well, the Joint Committee on Taxation has produced something along the lines of what the Treasury Secretary ordered: an assessment of the economic effects of the House's $550 billion tax cut, which the administration says it "strongly supports" even though it would prefer the full $726 billion "jobs and growth" plan. The joint tax committee quietly slipped its analysis into the Congressional Record on Friday, just as the House was preparing to pass the tax cut. To look at the study is to understand the reasons for this stealth release.

The committee, like the CBO, used dynamic scoring, predicting the tax cut's effect on the economy and taking that into account when measuring revenue impact. And, as Mr. Snow hoped, it considered the effect of tax cuts without changes on the spending side. Nevertheless, it found that a tax cut totaling $550 billion through 2013 would barely budge the economy. Three of five models predict an increase of 0.2% of gross domestic product between 2003 and 2008 - or an average of $18 billion annually. The most optimistic suggests a rise of 0.9% - an average of $76 billion a year. And that's the good news. During the second five years, from 2009 to 2013, the tax cut would likely be a drag on economic growth. Three of the five models show a drop in gross domestic product of 0.1%, one foresees a 0.2% decrease and one is simply flat-lined.

As the committee explained, the tax cut "would likely stimulate the economy immediately". But "this stimulus is reduced over time because the... incentives are temporary, and because the positive business investment incentives arising from the tax policy are eventually likely to be outweighed by the reduction in national savings due to increasing federal government deficits". In other words, pumping money into the economy works to spur economic growth in the short run, but if it's paid for with deficit spending it slows the economy over the long term.

Will the tax cut create jobs? In the first five years, somewhere between 230,000 (according to three of the models) and 900,000 jobs would be created. To put this in perspective, the economy has lost 500,000 jobs in the past three months alone. In the second five years, the study predicts no new job creation (one model) or actual job losses. Will the tax cut pay for itself by generating more tax revenue, or even come close? The "feedback effects" found in the five models through 2013 show that part of the tax cut would indeed be recouped through higher revenue, but even the most optimistic prediction (recovering 23.4% of the cost) falls far short of having the cut somehow magically pay for itself. The other numbers are far lower, as tepid as 2.6%. Ways and Means Chairman Bill Thomas (R-CA) took a glass-half-full approach to all this, writing to colleagues yesterday that the report "shows clearly that smart tax policy can have a significant positive effect on the economy".

On his weekend rounds, Mr. Snow used the word "soggy" to describe the state of the economy. One thesaurus lists as possible synonyms: "sloppy, mucky, swampy, sodden, slushy, watery, miry, fenny, boggy" and deep with mud. To judge by the joint committee's analysis, Mr. Snow should have applied the word to the administration's economic rationales.