The phrase Bush tax cuts refers to changes to the United States tax code passed originally during the presidency of George W. Bush. The 2001 act and the 2003 act significantly lowered the marginal tax rates for nearly all U.S. taxpayers. There is considerable controversy over who benefited from the tax cuts and whether they have spurred growth.
Yes, letting the tax cuts expire at the end of 2012 would effectively raise taxes during what will still feel like a recession. It will mean a small tax hike for the middle class. But it's something our do-nothing Congress can actually accomplish because it requires Congress to literally do nothing. Allowing the expiration of a law only takes forty-one votes in the Senate.
Despite all the damage they have already done, letting the tax cuts expire would still eliminate a big chunk of our long-term debt problem. Without the Bush tax cuts, we will have more than $300 billion per year, beginning in 2014, at least some of which could go toward helping ordinary people.
Fourth, in 2010, the CBO said that extending the tax cuts, while good for the economy in the short term, would be bad in the long term. Making the "middle class" tax cuts permanent would increase GNP by 0.5-1.5 percent over the first two years (Table 3; that's additional growth of 0.2-0.7 percentage points per year) but would make it 0.9-1.3 percent smaller after a decade (Table 4)--even without assuming any policy changes to pay for the tax cuts.
Third, tax cuts are bad for the middle class. This was a staple of Democratic economic analysis during the Bush administration. For example, in 2004, William Gale and Peter Orszag showed that if you take into account the fact that tax cuts must be paid for eventually (either through spending cuts or tax increases), the Bush tax cuts are bad for everyone except the top income quintile. If you make the relatively realistic assumption that the tax cuts will be paid for by proportional financing (everyone's cash income goes down by the same percentage, whether through lower transfers and services or higher taxes), the only beneficiaries are the top 1% (Table 3).
The nice thing to say about Romney's tax plan is that, since high tax rates discourage work, savings and investment, lower tax rates could theoretically create more work, savings, and investment. The not-so-nice and more-true thing to say about Romney's tax plan is that a proposal built around lower marginal income tax rates and even lower investment taxes can end with two scenarios. The first is everybody pays lower taxes, government revenue plummets, and we blow up the deficit. The second is a revenue-neutral plan where the bottom 95% pays more.
Romney wants to extend the Bush law into perpetuity and cut each marginal tax rate by an additional 20 percent. That plan alone could increase the 2015 deficit by about 70% -- not cool for a fiscal conservative. So Romney says he'd also reform the tax code to make up the lost revenue.
Sounds simple enough. It's not. In fact, this idea might be even more politically improbable than a plan to raise taxes.
I was excited to hear the president come out forcefully against extending the temporary 2001 & 2003 tax breaks for those earning more than $4,000 a week. And remember, despite the rhetoric from the conservative sound machine, this is not a tax increase; it is a return to rates that were in effect in 2000, rates that not only brought a booming economy but left us with a budget surplus. These “temporary” tax breaks, signed into law by the Bush administration, did nothing but explode our deficit, squander our surplus while America hemorrhaged 800,000 jobs per month, many of those jobs shipped overseas by so-called “job creators” to further bolster corporate profits.
But it is a mistake to cut taxes without raising revenues. We know G.W. Bush's tax cuts enacted in 2001 and 2003 to revive an economy flattened by the dot-com bubble bust have cost plenty. And we know what happened to all that money saved by corporations and individuals.
Not much. Just three million jobs were created during Bush's eight years, household incomes did not even keep up with inflation, and yet corporate profits are up more than 14 percent as a percentage of GDP -- the highest in history.
So most of the money flowed to corporations -- who are currently hoarding more than $2 trillion in cash -- and the top 1 percent income earners who benefited most from the tax cuts. And since the top 1 percenters spend less of their money than the 99 percenters, much of it is being held in banks that have over $1 trillion in excess 'zero sum' deposits that aren't being put to work to revive this economy.
President Obama is taking a hard line on extending any of the Bush tax cuts. In order actually help stimulate the economy he proposes keeping them for one year for families making less than $250,000 per year. This helps the middle class get some relief and as most economists know with this income group, they will spend the extra money. This will help stimulate the economy and create more jobs. In pushing for the $250,000 cap, the president is both helping those who most need it and helping the economy.
No, this has nothing to do with sound economic policy. Instead, as I said, it’s about a dysfunctional and corrupt political culture, in which Congress won’t take action to revive the economy, pleads poverty when it comes to protecting the jobs of schoolteachers and firefighters, but declares cost no object when it comes to sparing the already wealthy even the slightest financial inconvenience.
And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. Take a group of 1,000 randomly selected Americans, and pick the one with the highest income; he’s going to get the majority of that group’s tax break. And the average tax break for those lucky few — the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year — would be $3 million over the course of the next decade.
Preliminary estimates by Citizens for Tax Justice (CTJ) predict that President Obama’s proposal today to extend for an additional year the Bush income tax cuts for the first $250,000 in income for couples and the first $200,000 of income for singles, along with extension of most of the Bush estate tax cut, would reduce federal revenues by $243 billion.
And there were lots of questions and some confusion over who benefits from these tax cuts, which were originally passed by President George W. Bush and were extended by President Obama in 2010. These tax cuts benefit nearly every American family, though they've been criticized heavily for extending the greatest benefits to wealthy people. (National Priorities Project maintains the website CostofTaxCuts.com to track tax cuts for the wealthiest 5 percent of Americans; the Bush-era tax cuts have certainly offered more generous benefits to top taxpayers.)
"There is a great deal of disagreement about whether or not the wealthiest of Americans should see their tax cuts extended," Carney said. But the president believes "that it's good economic policy to extend the tax cuts for 98 percent of taxpaying Americans, and so do Republicans. So let’s do that."