Selected Essays of James Tobin
Chapter 22: Fiscal policy: its macroeconomics in perspective
* In making a major cut in federal income taxes the centerpiece of his program, George W. Bush has followed two inﬂuential precedents, one of Democratic Presidents Kennedy and Johnson in 1962–4 and the other, of course, that of Republican President Reagan in 1981. Candidate Bob Dole obeyed Republican tradition by proposing in his 1996 campaign a 15 per cent across-the-board cut in income tax rates. Instead, the re election of Bill Clinton continued the regime of ﬁscal discipline and monetary wisdom begun by Treasury Secretary Rubin and Federal Reserve Chairman Greenspan in 1993. The economy and the federal budget were doing so well in election year 2000 that it seemed unlikely that young Mr Bush could be elected, much less succeed in reviving Reaganomic ﬁscal policies. Yet now, in 2001, it seems quite probable that a substantial permanent cut in income taxes will be enacted, along with an emergency package to encourage spending soon this year. The story of macroeconomic and ﬁscal developments over the last 40 years is an amalgam of economic theory, politics, and ideology. I admit to being both a Keynesian and a neoclassical economist and both a liberal and a conservative in public policy. I was an adviser to President Kennedy, and an informal consultant to other Democratic candidates. Win or lose, my advice was very often not taken. JFK’S TAX CUTS AND THEIR UNHAPPY SEQUEL In 1962–4, when JFK ﬁrst considered and then recommended cutting taxes, the economy was hesitantly recovering from...
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