The Curse of the Bush Tax Cuts

Updated July 15, 2012

It’s the summer of 2012, President George W. Bush has been out of office for 3 ½ years, and  the biggest issue of the presidential campaign is whether to keep his signature tax cuts, which were first passed in…2001.

President Obama wants to extend for a year the tax cuts for households making less than $250,000 but not for higher earners. Future Republican presidential nominee Mitt Romney wants to make them permanent and then cut personal marginal tax rates by another 20%.

Congress will punt on this until after the election and maybe then, too. That’s what it and the president did the last time the tax cuts were slated to run out a couple of years ago.

Meanwhile, these tax cuts, which as I’ve written repeatedly failed to create substantial numbers of jobs, cost the Treasury $1.8 trillion in revenue between 2002 and 2009, and continue to drain our Treasury of $100 billion a year. If they’re made permanent they will add as much as $3.5 trillion to our debt load over the next decade.

And yet, no one can kill them, because once people get used to a certain level of after-tax income, removing a tax cut feels like a tax increase. That’s a very effective political argument for Republicans and was the poison pill slipped into the bill from the get-go.

The Bush tax cuts were conceived in 1999 as part of then-Gov. Bush’s campaign for the Republican presidential nomination as a way to counteract Steve Forbes’ flat tax, a fringe idea that still has a big following in the GOP (think Herman Cain’s 9-9-9).

Then it became part of an explicit strategy by President Bush to reduce the surplus we had when he took office. That’s right, the president actually told a joint session of Congress in 2001: “The people of America have been overcharged, and, on their behalf, I’m here asking for a refund.”

So, he sent Congress his tax cut plan that phased in cuts in marginal rates over five years, gave new tax benefits to retirement plans, and slashed estate taxes.

Former President George W. Bush spoke at a conference in New York in April. Photo: Howard R. Gold/The Independent Agenda.

But there was a catch: The Byrd Rule allowed senators to block any legislation that significantly increased the federal deficit over more than ten years. So, the Bush tax cuts had to expire in ten years—in theory.

But in 2003, the economy was recovering slowly and there was talk of a “jobless recovery” only a year before the presidential election. So, the president pushed for a new tax cut package that made the cuts in marginal tax rates from 2001 effective immediately while reducing capital gains and dividend taxes to a top rate of 15%.

The bill was pushed through the Senate by the “reconciliation” process. Vice President Dick Cheney broke a 50-50 tie, and it became law. Not exactly a monument to bipartisanship.

So, here we are a decade later stuck with an ineffective tax cut that’s a fiscal burden but which seems politically impossible to eliminate.

It’s never a good idea to raise taxes in a recession, but this recession/deleveraging may last for years, so should we keep kicking the can down the road?

And yes, by cutting taxes, the government did return money to taxpayers, which is a good thing. But this tax cut didn’t work and we’re still borrowing money to pay for it just as surely as we are for food stamps, extended unemployment benefits, or military spending overseas.

Fact is, the Bush tax cuts are a luxury we can no longer afford. It’s time to cut them loose–all of them.

 

 

, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

15 Responses to The Curse of the Bush Tax Cuts

  1. ignatzk July 13, 2012 at 9:47 pm #

    Just because the government continues to overspend doesn’t mean it hasn’t ripped off the taxpayer. Cut spending before even thinking about raising taxes.

    • HowardRGold July 15, 2012 at 1:06 am #

      Nice slogan, but we have cut spending–by $2.2 trillion over the next ten years. And please tell us exactly what you would cut–defense? Food stamps? Medicare? Social Security?

      I agree there\’s waste in the federal budget, but only one-third of the entire budget is tied to ALL discretionary spending, and defense accounts for two-thirds of that, or 20% of the whole. Domestic spending, the kind that you want to cut, is only 10-12% of the whole budget.

      If you eliminate the ENTIRE $410 billion domestic discretionary spending budget, you\’d still have an annual deficit of almost $1 trillion. Medicare, Medicaid and Social Security, mandatory programs, are taking more and more of every taxpayer dollar spent.

      I agree we should tackle those with the kind of uncomfortable solutions many Tea Party Medicare and Social Security recipients would oppose. But until we do, the gaping revenue hole left by the Bush tax cuts needs to be closed.

  2. Ascender July 16, 2012 at 12:56 pm #

    So true, Gold. And carrying the point a step further, health care costs are a huge factor in this (which drive Medicare and Medicaid costs). We will never make any progress on our debt unless we reduce health care spending. But nobody in politics has the balls to say it’s a waste to hundreds of thousands, or even millions of dollars trying to save someone who is, say, 80 years old, and has cancer in advanced stages. The obesity in this country certainly isn’t helping. People need to buck up and quit blaming the government for everything.

    • HowardRGold July 16, 2012 at 2:00 pm #

      I\’m with you about blaming the government for everything, and though this may not be politically correct, I think people who remain fit and active by certain basic measures should pay less for health insurance as an incentive.

      The 80 year olds are a difficult problem. In theory I agree we shouldn\’t be paying for hip replacements for people with advanced diseases at very old ages, but that is somebody\’s husband or wife or father or mother. We need to figure out a better mechanism to make those determinations without the claims of \”death panels\” flying around.

  3. Passingthru July 18, 2012 at 2:33 am #

    It is a very complicated equation, but history has shown us that lowering taxes does not grow the economy. Taxes were lowered in the years leading to the Great Depression, just as they were immediatlly prior to the current recession.

    By contrast, George H.W. Bush RAISED taxes, as did his successor Bill Clinton and the following years marked the longest economic expansion in American history. During the fifties, the greatest period of shared prosperity in the country, the highest marginal rate was ninety percent. Historically, the vast number of Americans have actually thrived when taxes were high.

    • HowardRGold July 18, 2012 at 7:16 pm #

      I agree that lowering tax rates doesn\’t necessarily boost growth, but I don\’t think raising taxes is the answer, either. When we had prosperity with high tax rates, it was because the economy was firing on all cylinders. We clearly don\’t have that situation today, so raising taxes would depress growth, I think, although we may need to do it for other reasons.

  4. Jim Thomas August 8, 2012 at 6:07 am #

    The key to boosting the economy is not about tax rates; it’s about getting the housing industry going. It’s about banks lending money based on reasonable credit standards, not the super strict ones most are using. Imagine how much money would be unleashed if people were able to refi at today’s low rates instead of being told that they don’t have enough equity in their homes because the subprime crisis lowered their home values. Imagine how many jobs would be created if homebuilders could start building again, secure in the knowledge they’d have buyers who could find financing. It could happen with the right regulations and/or government guidelines.

  5. Jack Douglas September 4, 2012 at 2:06 pm #

    Way fewer home buyers are out there as the baby boomers pass through the home acquisition age and into retirement years. Currently there are a huge number of homes that are vacant and it would make sense to use those vs buying new ones.

    With the number of home buyers dropping dramatically why would this country continue to use the number of new homes as an economic indicator? Perhaps housing inventories would be used for a more up to date indicator.

  6. Gary October 11, 2012 at 10:44 pm #

    For years the Democrats said the Bush tax cuts were for the rich people only. Let all the tax cuts expire and all the people can see if the tax cuts were only for the rich.

  7. HowardRGold July 16, 2012 at 1:09 am #

    Sharp eye, Harry, and you\’re right–I updated the piece to correct the sentence.

    And thanks for your other observations, too.

  8. HowardRGold July 20, 2012 at 3:49 am #

    Thanks for your comment and please see my post, \”Domestic Spending Already Has Been Cut–a Lot\”
    http://www.independentagenda.com/budget-and-spend

Trackbacks/Pingbacks

  1. More Reasons Why Fixing the Debt Crisis Is Hard | The Independent Agenda - July 25, 2012

    [...] drumbeat of worry is growing as the US approaches the fiscal cliff, when the Bush tax cuts and Obama payroll tax cuts expire and automatic spending cuts kick in just as Congress debates [...]

  2. Ryan Is a Bold and Good Choice for Romney | The Independent Agenda - August 11, 2012

    [...] plans will cut personal income tax rates by 20% in addition to the Bush tax cuts, which have been a fiscal albatross for this country. They will cut domestic spending even more than the $1 trillion in automatic spending cuts we’ll [...]

  3. Paul Ryan Is Incoherent on Economics and Taxes | The Independent Agenda - October 1, 2012

    [...] presidential nominee Mitt Romney’s tax plan added up. Instead, he retreated to the usual supply-side bromides that haven’t created jobs in 20 years along with a shocking refusal to face up to their fiscal [...]

  4. How I'd Avoid the Fiscal Cliff | The Independent Agenda - November 15, 2012

    [...] of the Bush tax cuts but get more tax revenue from upper-income taxpayers. I would rather let the Bush tax cuts expire for households making over $250,000 and let the rate revert back to 39.6%, where it was in [...]

Leave a Reply