Media Watch: The Washington Post and the Bush Stimulus Plan

If you had to guess, how big is the stimulus plan President Bush has proposed? The Washington Post guessed this past week and guessed wrong.

The Bush plan is to stimulate the economy by cutting taxes and spending money. Thus far, $55 billion has been spent: $15 billion on the airline industry; $20 billion on New York; $20 billion on counter-terrorism ($15b+$20b+$20b=$55b). Another $60 to $75 billion in stimulus is planned, most to come in the form of tax cuts. (House Republicans on the Ways and Means Committee passed a plan to provide $100 billion in tax cuts; Treasury Secretary Paul O'Neill immediately denounced the vote as"show business.")

The Washington Post on October 6 estimated that the Bush plan in total would be equal to about 1.5 percent of the Gross Domestic Product (GDP). So far so good. But the paper claimed that the Bush plan thereby equals Reagan's. Hmm. Maybe. Let's see. Uh ... no.

Economist Dean Baker, to whom we turn in such matters, ran the Bush numbers through his calculator. It turns out the Bush plan is less than half Reagan's.

Dr. Baker explains:"In 1980, prior to the Reagan tax cuts taking effect, individual and corporate income taxes were equal to 11.7 percent of GDP. In 1984, when the tax cuts had been fully phased in, these taxes were equal to just 9.8 percent of GDP, a decline of 1.9 percentage points. In 1980, defense spending was equal to 4.9 percent of GDP. It reached 6.1 percent in 1983, and eventually peaked at 6.2 percent in 1986. The rise in defense spending from 1980 to 1983 was 1.2 percentage points of GDP. If this is coupled with the 1.9 percentage point decline in taxes, it gives a total stimulus of 3.1 percentage points of GDP, more than twice the size of the [Bush] 1.5 percentage point stimulus."

Any questions?