MORE ON TAX CUTS

Just thought I'd pass on this from Freddie Mac economist Frank Nothaft, on the likely economic effects of the President's tax cuts:

By stimulating consumption and business investment spending, the short-term effect will be to accelerate economic growth and reduce the unemployment rate more rapidly. The "cost," however, is larger federal budget deficits that raise real interest rates (current rates minus inflation) and crowd out private-sector borrowings longer term. Economy.com has estimated that enactment of the administration's proposal by the end of the first quarter will lift 2003 GDP growth by 0.7 percent. Macroeconomic Advisers estimated that enactment by mid-year with tax cuts retroactive to January 1 will boost growth by a whopping 1.1 percent in 2003 and 0.6 percent in 2004, with the unemployment rate 0.6 percent lower in 2004 than it otherwise would be; however, cumulated over the next five years, the effect on GDP is negligible, as higher interest rates reduce growth in 2005-2007.

It would be hard to imagine a plan more calculated to increase Republican electoral success in 2004, but decrease Republican electoral chances in 2008. Now, 2008 is a long way off, of course, and it will probably be hard to make a persuasive public pitch that future economic problems, should they materialize, are due to Bush's irresponsible tax cut plans (supported by congressional Republicans and, it should be said, whimpy Democrats). Still, if this stuff pans out as predicted, and there are no other wrinkles, there could be a real drag on the economy again, in 2006, just in time for some big midterm congressional losses for the President's party.