The Bush Tax & Budget Legacy
- Helping the rich get richer: The tax cuts have reduced tax fairness and increased inequality
- Digging the hole deeper: The tax cuts have burdened the nation with debt and undermined critical services
- Failing to grow an economy that works for all Americans
- Information & resources
Since 2001, the Bush Administration has 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 since 2001 have:
- 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 tax cuts" are a series of tax cut laws enacted between 2001 and 2006, and they include various provisions. Several provide 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 provide benefits to working families, including increases in the Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Credit; with reforms to these credits to expand benefits for low-income families, these could be renewed 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, as President Bush has urged, would cost the nation about $4.4 trillion just over 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 the next President 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 tax cuts have reduced tax fairness and increased inequality
A fair tax system should be based on ability to pay. But the Bush tax cuts, which are highly skewed toward the very wealthy, have made the tax code less progressive. Even taking this year’s stimulus payments into account, the very wealthy received disproportionately large benefits from tax cuts in 2008. Millionaires, who represent just a fraction of 1 percent of American households, will get an average tax cut of $132,335, or 16.6 percent of the benefits from the tax cuts in 2008. In contrast, households with incomes below $40,000, who represent 50 percent of households, will get a smaller share — just 15.4 percent.
The Bush tax cuts are continuing to widen the gap between the very rich and everyone else. Recent statistics show that households with the top 1 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 tax cuts have 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 someone will have to pay higher taxes; suffer deeper cuts in health care, education, and other services; or both.
The long-term impact of the tax cuts is of major concern as the nation faces the challenge of rising health care costs and an aging population. But the total shortfall faced by Social Security over the next 75 years is actually less than what it would cost to make the 2001 and 2003 tax cuts permanent for just the top 1 percent over that time period.
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.
Despite the string of costly tax cuts enacted since 2001, economic growth since then has been sub-par. Job and wage growth have been particularly weak; only corporate profits have soared. Between 2000 and 2006, median family income fell by nearly $1,000 in real terms, and 4.9 million more people were living in poverty.
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 with spending reductions, 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. More importantly, any benefits for the economy as a whole have not trickled down to the majority of Americans.
Evidence Shows That Tax Cuts Lose Revenue, Center on Budget and Policy Priorities (July 21, 2008).
Distribution of the 2001-2006 Tax Cuts: Updated Projections, July 2008, Urban-Brookings Tax Policy Center (July 2008).
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).
How Robust Was the 2001-2007 Economic Expansion?, Center on Budget and Policy Priorities (April 22, 2008).
Long-Term Social Security Shortfall Smaller Than Cost of Extending Tax Cuts for Top 1 Percent, Center on Budget and Policy Priorities (March 31, 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).
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).
Distributional Effects of the 2001 and 2003 Tax Cuts: How Do Financing and Behavioral Responses Matter?, Brookings Institution (June 2008).