Fiscal Policy: Its Macroeconomics in Perspective
President George W. Bush is preparing a drastic permanent reduction in federal income and estate taxes. He cites as precedents tax cuts by Kennedy-Johnson 1962-64 and Reagan 1981. In those cases, however, the economy was operating well below full employment and needed a “demand-side” stimulus (even though Reagan advertised his tax reduction as “supply-side”). In 2001, however, the economy is very close to full employment, and if it needs a stimulus at all, it is a quick modest temporary one instead of the large permanent one proposed.