Bush’s tax cuts didn’t get us in this mess
BY STEVE HUNTLEY email@example.com May 28, 2012 7:30PM
Updated: July 3, 2012 9:40AM
With the presidential campaign gathering steam, the voters are going to be fed a lot of baloney before Election Day. One of the biggest humdingers now coming your way: The Bush tax cuts are responsible for the mess the country is in.
A recurring theme in President Barack Obama’s attacks on Republican presidential candidate Mitt Romney and his tax policies is: “We can’t go back to the same policies that got us into this mess.”
President George W. Bush’s tax cuts did not cause the fiscal crisis of 2008. Our economic calamity came in a housing meltdown — the result of years of administrations of both parties encouraging variable-interest, no-interest, little or no down payment, and no-document or liar loans that flooded people into homes they couldn’t afford under traditional mortgage lending practices.
To its credit, the Bush administration twice advanced reforms to rein in Fannie Mae and Freddie Mac, major players in pushing bad loans. Each time it was blocked by powerful Democrats, Rep. Barney Frank of Massachusetts and Sen. Chris Dodd of Connecticut. Frank famously said he wanted the two quasi-governmental agencies “to roll the dice a little bit more in this situation towards subsidizing housing.” Even after the home-ownership explosion was starting to be revealed to be a house of cards, Dodd declared, “These two institutions are fundamentally, fundamentally strong.”
So far, “rolling the dice” on the two “fundamentally strong” agencies has cost the taxpayer $150 billion. No wonder the Wall Street Journal calls Fannie and Freddie the “toxic twins.” The irony is that Frank and Dodd not only escaped responsibility for their roles but they foisted blame for the housing bust on high finance and authored a 2,000-plus-page bill to pile new regulations on banks and other financial institutions.
No doubt, Wall Street played an egregious role in the housing bubble, but the bottom line is that, absent the millions of bad mortgages, the speculators would have had nothing at which to throw billions of dollars in risky bets.
We can debate the merits of tax cuts vs. tax increases and spending reductions (actually slowing the growth of Washington’s profligacy) vs. government “investments” all day long, but we won’t be talking about the root causes of the housing crisis that precipitated the Great Recession.
Home sales finally may be showing signs of life, but that’s not because of anything the administration has done. Its efforts to rescue “underwater” homeowners who owe more than their houses are worth have been ineffective. The free-market system is slowly wringing out these bad loans. Still, it’s more than a little troubling that nearly four years after the bubble burst, no one has an accounting of all the sour loans.
Conflating the housing bust and the Bush tax cuts is a way to distract the voters from the failure of the administration’s nearly trillion-dollar stimulus and other policies to right the economy. Distraction is also the goal of attacking Romney’s record at the equity firm Bain Capital by focusing on its few failures. The actual Bain record is one of 80 percent success in rescuing ailing firms and building new businesses, adding jobs and creating wealth for investors, millions of them in public pension funds.
Best advice to voters: Keep your eye on the Obama record on the economy.