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 $3.5 trillion just over the next decade. 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. Millionaires, who represent just a fraction of 1 percent of American households, will get 20 percent of the benefits from the tax cuts in 2007. In contrast, households with incomes below $50,000, who represent over 60 percent of households, will get a smaller share — just 15 percent.
The Bush tax cuts are continuing to shift responsibility for paying taxes from the very wealthy onto the middle class, and widening the gap between the very rich and everyone else. Average federal tax rates for the middle class are higher today than in 1960, but for the top 1 percent the tax rate has declined by half. 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 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.
This year, the Congressional Budget Office estimates that the tax cuts will cost the nation $195 billion to $215 billion in lost revenues and added interest costs. This is equivalent to total federal spending on Medicaid and the State Children's Health Insurance Program. The longer-term impact of the tax cuts is of even greater concern, as the nation faces the challenge of rising health care costs and an aging population.
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 has been sub-par during the economic expansion. Job and wage growth have been particularly weak; only corporate profits have soared. Between 2000 and 2005, the income of the typical family fell by $1,500 in real terms, and 5.4 million more people were living in poverty. A recent analysis by the Congressional Budget Office was unable to determine whether the tax cuts are having a net positive or negative effect on the economy, but found that in either case, the effect is small. More importantly, any benefits for the economy as a whole have not trickled down to the majority of Americans.
Bush Tax Cut Scorecard, Citizens for Tax Justice (October 13, 2006).
Tax Cuts: Myths and Realities, Center on Budget and Policy Priorities (March 20, 2007).
The Distribution of the 2001-2006 Tax Cuts: Updated Projections, Tax Policy Center (November 2006).
Letter about the Budgetary and Economic Impact of the Tax Cuts, Congressional Budget Office (July 20, 2007).