The real winners of the Bush-era tax cuts were not American businesses, but those overseas. An assessment by the Financial Times of President George W. Bush’s tax breaks passed in 2001 and 2003 found that they did little to boost U.S. business investment and did not improve economic competitiveness. In fact, the years after the tax cuts “were the weakest decade in U.S. postwar history for real non-residential capital investment,” wrote the Times.

 

During the 2000s, investment in non-residential structures actually declined, whereas in each of the previous five decades it grew. Likewise, growth in real gross non-residential investment averaged between 3.5% and 7.4% per decade until the 2000s, when it grew by only 1%. Investment in equipment and software ranged from 5.7%to 9.9% in each decade from the 1950s through the 1990s, but in the 2000s, it grew less than 2%.

 

The Bush administration apparently did not take into account how the change in monetary and fiscal policy would do more to benefit business interests outside the U.S. or else didn’t care. “Washington sets policy as if the U.S. were a closed economic system and rarely considers ramifications outside the country,” the Times added.

 

In actuality, the tax cuts may have encouraged capital flight to other countries because of the weak American dollar and the tendency of capital to flow to stronger currencies. The Financial Times points out that “From December 2003 to August 2010, the MSCI Emerging Market Index appreciated 120 per cent versus a decline of 6 per cent for the S&P 500.”

-Noel Brinkerhoff, David Wallechinsky

 

Non-US Groups Reaped Fruits of Bush Tax Cuts (by Richard Bernstein, Financial Times)