The Bush Tax & Budget Legacy
- Helping the rich get richer: The Bush tax cuts reduced tax fairness and increased inequality
- Digging the hole deeper: The Bush tax cuts burdened the nation with debt and undermined critical services
- Failing to grow an economy that works for all Americans
- The last Bush budget
- Information & resources
Beginning in 2001, the Bush Administration made tax cuts the centerpiece of its domestic agenda. Whether the federal budget was running surpluses or historic deficits; whether the economy was growing or in recession; before and after September 11, 2001, the start of the wars in Afghanistan and Iraq, and the devastation of Hurricane Katrina, President Bush proposed and Congress enacted a series of tax cuts.
Overall, the tax cuts enacted during the Bush Administration:
- reduced tax fairness and increased inequality;
- burdened the nation with debt and undermined critical services; and
- failed to grow an economy that works for all Americans.
The Bush Administration's tax cuts were enacted between 2001 and 2006, and they included various provisions. Several costly provisions provided benefits almost exclusively to the very wealthiest Americans, including cuts in the tax rates on income from capital gains and dividends, reductions (and eventual brief repeal) of the estate tax, and reductions in the top individual income tax rates. A few provided benefits to working families, including increases in the Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Credit. (The refundable Child Tax Credit and the EITC were expanded in the American Recovery and Reinvestment Act for 2009 and 2010.) Improved tax benefits for working families could be included as part of a fair and fiscally responsible tax-reform package.
Nearly all of the tax cuts enacted since 2001 are set to expire at the end of 2010. Renewing all of them would cost the nation about $4.4 trillion over just the next decade when additional interest on the national debt is included. The benefits would overwhelmingly flow to the wealthiest Americans, leaving other Americans to pick up the tab. The expiration of the Bush tax cuts presents an opportunity for President Obama and Congress to develop a tax reform plan that promotes tax fairness and provides adequate revenues to invest in the future of all Americans.
Helping the rich get richer: The Bush tax cuts reduced tax fairness and increased inequality
A fair tax system should be based on ability to pay. But the Bush tax cuts, which were highly skewed toward the very wealthy, have made the tax code less progressive. Millionaires, who represent just a fraction of 1 percent of American households, will get an average tax cut of $135,020, or 21.5 percent of the benefits from the tax cuts in 2009. In contrast, households with incomes below $40,000, representing 50 percent of households, will get a much smaller share of the benefits — just 8 percent.
The Bush tax cuts widened the gap between the very rich and everyone else. Recent statistics show that households with the top one percent of income hold a larger share of the nation’s income than at any time since 1928, just before the Great Depression. At a time when the share of income going to those at the very top is already at historic levels, the Bush tax cuts gave those at the very top of the income scale the greatest percentage increase in after-tax income, exacerbating inequality.
Digging the hole deeper: The Bush tax cuts burdened the nation with debt and undermined critical services
One may think that even if most of the benefits of the Bush tax cuts go to the wealthy few, a crumb from the Bush tax cuts is better than no tax cut at all. But tax cuts aren't free. The tax cuts have been partially financed by cuts in domestic programs, especially those serving vulnerable people; a shift in the tax burden to states and localities; and massive additions to the nation's debt. All the money the nation has borrowed to finance the Bush tax cuts will eventually have to be paid back, with interest. That means some people will have to pay higher taxes, suffer deeper cuts in vital public services, or both.
When the costs of repaying the tax cuts are considered, the small tax benefits received by average Americans from the Bush tax cuts are wiped out. Four out of five taxpayers lose more than they gain from the tax cuts. Only the top 20 percent come out ahead — and the biggest gains go to those at the very top.
Failing to grow an economy that works for all Americans
"If 'equity' were the overriding concern, there would have been no Ronald Reagan and George W. Bush tax cuts."
— Robert Novak, conservative columnist, Washington Post op-ed, August 5, 2007
Some supporters of the Bush tax cuts concede that they don't promote fairness, but defend them on the grounds that they promote economic growth. However, this claim fails to stand up.
With the string of costly tax cuts enacted since 2001, the nation has suffered a severe recession. Unemployment has soared, as has the deficit. And even before the start of the recession in December 2007, the tax cuts failed to promote strong job and wage growth for average Americans. Between 2000 and 2007, median family income fell by $2,000 in real terms for working-age households (those headed by someone younger than 65), and 5.7 million more people were living in poverty. Increasing poverty, unemployment, hunger, and homelessness are especially difficult for millions of women and families who already were struggling to make ends meet.
Studies by economists at the Joint Committee on Taxation, the Congressional Budget office, and elsewhere have determined that if tax cuts are not paid for, they are likely to have a negative effect on the economy over time as a result of increased budget deficits. Even if tax cuts are offset by spending reductions, a recent study by the Treasury Department – under the Bush Administration – found that they would only increase economic growth by a few hundredths of one percentage point annually. And, as we saw during the Bush Administration, the benefits of that small economic growth fail to reach the majority of Americans.
President Bush’s budget for Fiscal Year 2009 (October 1, 2008 to September 30, 2009) proposed cuts in a wide range of domestic programs. Congress refused to make those cuts, resulting in a stalemate. The regular appropriations bills to fund domestic agencies were not enacted. Instead, Congress passed and President Bush signed a temporary measure that funded these services through March 2009, generally at FY 2008 levels. In early 2009, a new Congress developed legislation to present to President Obama to fund government services for the rest of FY 2009. It became law in March 2009. In contrast to President Bush’s proposal, this appropriations bill increased funding above the FY 2008 level for a number of vital services.
Tax Cuts: Myths and Realities, Center on Budget and Policy Priorities (May 9, 2008).
President Bush Has Made Tax Day Easier for the Rich – at the Expense of Everyone Else, Citizens for Tax Justice (April 14, 2008).
The Skewed Benefits of the Tax Cuts: With the Tax Cuts Extended, Top 1 Percent of Households Would Receive More Than $1.2 Trillion in Tax Benefits over the Next Decade, Center on Budget and Policy Priorities (March 28, 2008).
Distribution of the 2001-2006 Tax Cuts: Updated Projections, July 2008, Urban-Brookings Tax Policy Center (July 2008).
Extending the President’s Tax Cuts and AMT Relief Would Cost $4.4 Trillion Through 2018, Center on Budget and Policy Priorities (March 28, 2008).
Evidence Shows That Tax Cuts Lose Revenue, Center on Budget and Policy Priorities (July 21, 2008).
How Robust Was the 2001-2007 Economic Expansion?, Center on Budget and Policy Priorities (April 22, 2008).
Tax and Budget Issues Are Women’s Issues: Sacrificing Women’s Priorities to Pay for Tax Cuts for the Wealthy Few, National Women's Law Center (April 3, 2008).
Appropriations Bill for FY 09 Provides Additional Funding to Programs Important to Women and Families, National Women's Law Center (March 11, 2009).
Distributional Effects of the 2001 and 2003 Tax Cuts: How Do Financing and Behavioral Responses Matter?, Brookings Institution (June 2008).