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The Bush Tax Cuts: A Decade of Economic Disaster
This month marks the 10th anniversary of the first of the two tax cuts sought by President George W. Bush. The Economic Growth and Tax Relief Reconciliation Act was enacted in 2001 to be followed, in 2003, by the Jobs and Growth Tax Relief Reconciliation Act.
Ten years later, it is time we assess the actual results of these tax cuts, looking at economic performance rather than political promises. The results have been a disaster for the U.S. economy and for almost all of the American people. We have had very slow income and employment growth for the vast majority of families, an extremely unequal distribution of the direct financial benefits from these measures and very slow growth in the economy as a whole.
As a high-income person who has received these tax cuts during the past 10 years, I feel that it is my responsibility to speak out.
Supporters of tax cuts for high-income households, such as House Speaker John Boehner (R.-Ohio), argue that rich people are the “job creators” and that tax cuts encourage them to create jobs and that these new jobs, in turn, increase employment opportunities and improve the wages of the rest of the population.
Did any of these benefits occur after the Bush tax cuts? The quick and accurate answer is, no, they did not. Adjusted for inflation, the median weekly earnings of working Americans actually fell 2.3 percent from the end of the 2000-01 recession to the onset of the Great Recession. This is unique in the post World War II period.
Further, the recovery from the 2000-01 recession was the slowest of any post World War II recession to date, requiring 39 months before the number of employed Americans reached the pre-recession level. Where is even a scintilla of evidence that tax cuts such as those passed in 2001 and 2003 generate income and employment growth for the vast majority of the population?
A significant part of the failure of the Bush tax cuts to generate jobs and income growth flows from the top-heavy distribution of the benefits conveyed by these measures. The vast bulk of the reduced taxes were reaped by a very small number of families. In 2011, the average tax reduction to families receiving an income of $1 million or more (about 321,000 families) will be $139,199.
For this less than 0.5 percent of all families this is a total reduction in taxes of $860 million/week. Compare these tax benefits with the yearly savings proposed by cutting the Women, Infants and Children (WIC) health and nutrition program: $833 million. An obvious question is, why can’t this very small group of very high-income families give up just one week of their tax cut to provide nutrition for the tens of thousands of women and children that benefit from the WIC program?
More significantly, in light of the deficit hysteria gripping Washington, D.C., the combined impact of the 2001 and 2003 Bush tax cuts has been the addition of more than $2.6 trillion to the federal debt. This included more than $400 billion in interest payments on the debt necessary to pay for the cuts.
Of course, one might forgive these policy failures if the promise of economic growth had been fulfilled. On this measure, however, the record is even worse.
The 2000-01 recession ended in the fourth quarter of 2001, just in time for the first Bush tax cut to take effect. From the end of the recession until the onset of the Great Recession, the economy grew at a slower rate than in any other post recession period since World War II. Thus, despite promises from the advocates of the tax cuts, the reality was slower growth rather than faster growth. The additional tax cut in 2003 did nothing to increase the pace of economic growth.
In sum, the Bush tax cuts were a bad idea at the time and are an even worse idea today. Ending these cuts for incomes over $250,000 would generate over $100 billion a year in additional revenue. If we also created additional tax rates for very high-income families (e.g., at $500,000, $1 million, $5 million and $10 million) we could increase federal revenue by more than double that amount and put ourselves on the road to reducing deficits and debts.
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21 Comments so far
Show AllThe author's assertion (in the final paragraph) that the cuts are an "even worse idea today" confirms that the cuts neeed to be labeled the Bush/Obama cuts now that Obama zealously promoted their extension last December, sweetening the pot for corporations and the wealthy by defunding social security with his "payroll tax holiday".
The payroll tax cut was Barry's direct contribution to the right's deeply held desire and goal to defund and privatize SSI , Medicare and Medicad. He's a wanker as is his so called party.
Article correction: Bush era tax cuts, not Bush tax cuts since the Democrats in the Senate helped pass the Bush era tax cuts. But if you are going to call them Bush tax cuts, they are now the Bush/Obama tax cuts.
Ugh, haven't I read this before? It's as if I'm reading another repeat article and while at it, there's no mentioning about how Obama and his party in Congress misused the lame-duck session to extend the Bush tax cuts for the wealthy as usual. I'm tired of such disingenuous writing. Would any of these people writing about the disastrous consequences of the Bush tax cuts right now be doing so had the Democrats had simply done nothing and let the damn curse expire? I think not !
I had the same thought, maxpayne; this article, like the multiple "let's end the War on Drugs" articles proliferating recently, is déjà vu all over again.
I also agree, as many others have noted in comments, that Team Obama has fully embraced and "owned" the Bush-era tax cuts; thus, once again, the "Obama" brand ought to be placed on the marquee.
Team Obama can't disclaim their profound and pervasive congruence with the most reprehensible policies of the preceding maladministration by wringing its hands and blaming insufficient political clout and public support for maintaining the abominable Bush II status quo.
I think you're wrong. I think he's only using the "Bush Tax Cut" as an identifier not a blame placer. We all know who passed the extension on them. We'll never know what would have happenned if they had been allowed to expire. They weren't on fears that the sky would fall, much as we confirmed Bernanke based on groundless fears and we rushed to bail out Wall St.and the banks although apparently they were never in any grave danger. What did we get in return? a healthcare mandate, the promise that someday soon gays might be allowed to openly serve in the military, a renewal of the "patriot act" and more individual surveillance, and a promised extension on unemployment... fact was they still remained capped at 99 weeks.
Obama, Obama, Obama...does that make you feel all warm and fuzzy?
To complete the picture, we should include the unemployment rate.
According to the Bureau of Labor Statistics, unemployment during the Bush years, following the tax cuts, ranged from 4% to 6%. After the Obama election, it began to climb and is currently at 9.1%.
As Debbie Wasserman-Schultz (current head of the DNC) said recently "We own this economy" which I think means that Obama has to take responsibility the dismal jobs picture.
Then use the correct unemployment rate. Your quote of "9.1%" is not the unemployment rate. It is the percentage of people collecting unemployment benefits. Two entirely different things.
The tax cuts are weapons used to destroy the middle-class. The empire is in such dire straits that it can no longer afford to help maintain the middle-class. The US annually imports hundreds of thousands of foreign workers to take the jobs of the middle-class. The unions are being assaulted by the corporations and having it legalized by the Congress they employ Education and medical care for the middle-class will be privatized and put out of financial reach of the middle-class. Have a nice day.
Hoa binh
So correct and so depressing. For the same concept with a little "humor" (?), check out Ruben Bolling's, "Tom the Dancing Bug" of 6/17.
http://www.gocomics.com/tomthedancingbug/
Another view:
"The intelligentsia of the Democratic Party is growing increasingly enthusiastic about raising the highest federal income tax rates to 70% or more. Former Labor Secretary Robert Reich took the lead in February, proposing on his blog "a 70 percent marginal tax rate on the rich." After all, he noted, "between the late 1940s and 1980 America's highest marginal rate averaged above 70 percent. Under Republican President Dwight Eisenhower it was 91 percent. Not until the 1980s did Ronald Reagan slash it to 28 percent-----"
http://online.wsj.com/article/SB10001424052702304259304576375951025762400.html?mod=djemEditorialPage_h
Liberals blaming Bush for creating The Second Great Depression are no more helpful than conservatives blaming Obama for being unable to end it. The causes of our economic malaise lie beyond the limited powers of Presidents and politicians. The past 150 years have seen human societies achieve a seemingly impossible level of material prosperity because we learned to unleash the energy in fossil fuels. But the age of cheap abundant energy and the cheap abundant food it enabled is winding down. Looking twenty years into the future, I have little doubt that our material prosperity will be greatly diminished, our diet will be simpler and our mobility will be limited.
But that is neither a good thing or a bad thing, it is simply the hand that the laws of nature and our time in history have dealt us. What is important going forward, is how we respond. We can wring our hands and point fingers of blame, or we can envision how we can maintain a functional society with less energy and fewer luxuries. I suspect that our best future lies in the direction of resilient, self-reliant (but not self-sufficient) local neighborhoods and communities leading to a much more decentralized economy, not unlike the early days of our republic. So, focus your efforts close to home. Hope that state and national governments come to their senses, but prepare against the prospect that they will not.
Michael: While your post is true, what does it say about the waste on militarism? The Chicago School Doctrine being applied here at home (after being tested on the likes of Chile, Poland, Russia, South Africa, and more recently Greece and Spain)? What does it say about the tax cuts that have left the rich vastly richer, as the current Gini co-efficient proves? What does your bringing cheap former fuel into this discussion have to do with both political parties working together, with laws bent to protect the rich. Heck, the Supreme Court just said, pour as much money into elections as you'd like. Now poiticians are TOTALLY for sale.
So while your post reflects a trend that is real, it is a deflection from the subject. VERY real laws were passed that favored the interests of a narrow band of persons, and the result has impacted MILLIONS adversely. Therefore, it is entirely INSANE to retain those measures (i.e. continued tax cuts to the rich). And that's where the fact that Congress and the president serve big money comes into play. That, my friend, cannot be blamed on the price of oil or its scarcity. Although certainly a network of nefarious interests has made sure that oil remains the primary fuel that greases the joints of all industrial engines. These powers thwarted green investments for decades.
Hmmm
Looking at the Bush/Obama (actually neither it was the Congress that passed these cuts-but anyway....) requires that you look at the budget outlays in total. It was the combination of the tax cuts to the wealthy combined with a quadrupling of the Defense/Homeland Security budget that sent the American people down the road to the poor house. It is important to note at this juncture that it was NOT the lack discipline exercised by the average working person in America that was responsible for this. {the phony mortgage "crisis" not withstanding please note that in the overall scheme of debt the mortgage problems are a drop in the bucket. Mortgages are financial instruments backed by a tangible asset- a declining asset but one with actual value (with some exceptions) where as the bank scams are nothing but paper backed by paper - fraud}
And it was the Federal Reserve that slammed the door shut on the American People by giving out between 14-20 TRILLION to its close friends over the last 3 years. Please note that about half of that debt which is now assigned to the American People went to FOREIGN BANKS!!!!
It was the ruling elite that has literally stolen about 30 Trillion from the American People (including the devaluation of the dollar) It is high time we started arresting bankers for fraud and Politicians for treason and crimes against humanity. It really is that simple people. The people of Iceland made the right choice and decided enough was enough the criminal activities of the politicians and bankers must stop. So they arrested the bankers and the politicians and told the bankers to take THEIR debts and shove it. Guess what 2 years later they are nearly debt free, unemployment is low and they enjoy a stable currency.
WE MUST SAY NO TO THE FED AND THE BANKERS!!!!
Right on, DDearborn. It may be too late, however for the implementation of the kind of justice we'd like to see. Nature is busy tearing forests, rivers, and weather systems apart... in response to the fundamental brutality that, according to mystics, interrupts the unseen energy templates that form the bases of these systems. Without these items, $ is going to increasingly prove meaningless. I mean what does clean oxygen cost? What do pure rivers cost? How does one PAY to replant an entire forest over thousands of acres if no rain will come to nourish it? How do the oceans become replenished with fish?
We are on the cusp, as a humanity, of learning that Mammon (the love of $, or the power of its command over our lives) and Mars (militarism) are NO match for the incomprehensibly complex systems that lent us our very lives.
We can talk about politics and the economy, and most of us know exactly what's going on with both... but the reality of our lives is that notions of security, stability, and sustenance are becoming more remote by the hour. Watching nature die, in so many places, and understanding that the web of life cannot remain intact if too many interlocking systems break down at once, it's clear that the premise of economy, on a personal or collective scale, is about to become meaningless.
Here is an instance where I HOPE I prove wrong!
As I've asked before, do we have a math problem (economic) or a resource problem? Will taxing the rich and ending the wars (as we certainly should) solve the problem or only temporarily balance the metaphysical economic equation?
If the growth party is underway again, then how long will the planet put up with having China and India and other developing nations consuming resources like the USA?
They are only using that amount of resources because they are employed through the global market place (subcontracting) to produce goods for Americans. I am betting if they weren't busy producing cheap trinkets for us they wouldn't be consuming 1/2 as much. They weren't before Nike and other US manufacturers offshored their productiion. So in a sense part of what they consume is consumed on behalf of their "global" corporate bosses.
"Ten years later, it is time we assess the actual results of these tax cuts, looking at economic performance rather than political promises."
The thing with all these financial experiments is we never revisit them and evaluate how well they worked. How well did the bailout of Wall St. promote lending? I lived through Enron and I am still hearing people talk about the benefits of "privatization". Please, someone outline to me one case when privatization has been beneficial to consumers or a society.
Tax cuts...please where are all the jobs? We should be falling over them.
Excellent article!
I would just like to see ONE little itty bitty thing go in favor of the middle class. Or some ray of hope somewhere that things will change, but I don't think things will change until we get really angry. That 2nd Amendment thing is looming ugly.
I would agree with Mr. Barclay in the sense that the government needs the revenue and that there is no relationship between tax cuts and job creation. However a revenue increase of 100 or even 200 billion dollars a year would still leaved a gigantic (over 1 trillion dollar) deficit. The American economy is beyond the point where the nips and tucks of taxation and spending will make any appreciable difference.
It is time to look at structural changes in the economy.
Tim
"An obvious question is, why can’t this very small group of very high-income families give up just one week of their tax cut to provide nutrition for the tens of thousands of women and children that benefit from the WIC program?"
Because capitalists don't work that way!