Tracing the Bush Tax Cuts
- Julie Ault & Martin Beck -
Tracing the Bush Tax Cuts
Each year since 2001, and with much fanfare, the U.S President George W. Bush has launched tax legislation that purports to provide tax relief for struggling families in particular and for the American people at large. A great deal of public debate has ensued over interpretation of the complicated tax cut packages, and over the Bush administration’s claims about their impact on low- and middle-income households. President Bush signed his first tax bill, the Economic Growth and Tax Relief Reconciliation Act of 2001, into law on June 7, 2001. During the ceremony he stated, “Tax relief is an achievement for families struggling to enter the middle class. For hard-working lower-income families, we have cut the bottom rate of federal income tax from 15 percent to 10 percent. … Tax relief is an achievement for middle class families.”
While the President’s contention that the bill provides help to low- and middle-income /
The Center finds much of the information the Administration has set forth has been selective or misleading. As one example, President Bush has often cited the “average” tax cut that American families are receiving. The large majority of families are getting considerably less than this “average” amount. The tax cut that the typical household received in 2004 is less than half the amount that the President has described as being the “average” tax cut. How can this be? The Administration’s median tax-cut figures are skewed upward by the inclusion of the very large tax cuts going to a relatively small number of affluent taxpayers. Take, for example, a hypothetical situation where one taxpayer gets a $10,500 tax cut and nine taxpayers receive a $500 tax cut. Among these ten taxpayers, the average tax cut amounts to $1,500. Yet nine of the ten taxpayers are receiving a tax cut only one-third that size.
The Urban-Brookings Tax Policy Center data indicates in 2003 that the average tax cut for tax filers in the middle fifth of the population – those filers right in the middle of the income spectrum – would be $256, only one-fourth the $1,083 figure the Administration is citing for the average taxpayer. The average tax cut for the bottom eighty percent of tax filers would be $226. By contrast, the top one percent of tax filers would receive an average tax cut of $24,100. Those with incomes of more than $1 million would get tax cuts averaging $90,200.
Positive claims about the long-term effects of the tax cuts on the economy are dramatically at odds with a host of studies finding adverse fiscal, distributional and long-term economic effects from the tax cuts. These are from such respected institutions and analysts as the Joint Committee on Taxation, the Congressional Budget Office, the International Monetary Fund, Brookings Institution economists, Federal Reserve economists and the business-based Committee for Economic Development.
The Center on Budget and Policy Priorities 2004 report titled “The Ultimate Burden of the Tax Cuts” summarizes, “Popular discussions about the advisability of these tax cuts have commonly ignored a simple truth: someone, somewhere, at some time will have to pay for them. The payment may be in the form of increases in other taxes, reductions in government programs, or some combination of the two; the payment may occur now or later; it may be transparent or hidden. But iron laws of arithmetic and fiscal solvency tell us that the payment has to occur. To date, the tax cuts have been funded with increased borrowing.”
The Bush administration tax cuts are considered to be the primary cause for the projected increase in the federal deficit. New Administration data show that the tax cuts have played a bigger role than all other legislation enacted since the start of 2001 in creating the budget deficit. Tax cuts have contributed more to the worsening fiscal situation than all other new government policies combined, including all new costs related to Iraq and the war on terrorism and all domestic spending increases. Bush’s tax programs are likely to consume most, if not all, of the available surplus outside Social Security and Medicare.
The Joint Committee on Taxation estimates that tax cuts enacted since January 2001 are costing a total of $258 billion in 2006 (including the increased interest costs of the debt that result from the borrowing that is required to cover the lost revenues). As of August 4, 2006, the Congressional Budget Office projected the deficit will be $260 billion for this fiscal year. These figures indicate that the budget would now be in balance if it were not for the Bush tax cuts.
Between 2005 and 2014, the increased interest payments on the debt that will result from the tax cuts will amount to approximately $1.1 trillion, if the tax cuts are made permanent and the tax-cut proposals in the Administration’s fiscal year 2005 budget are enacted. The interest payments would reach $218 billion in 2014. Without the tax cuts, deficits would be modest over the next ten years and be below $100 billion in 2014. By contrast, with the Administration’s tax-cut policies, the deficit is likely to grow to approximately $677 billion by 2014. Over the ten-year period from 2005 through 2014, the tax cuts will increase federal deficits by nearly $4 trillion. This includes the cost of the increased interest payments that will have to be paid on the national debt.
Data issued by the Congressional Budget Office shows that “the income gap in 2000 was the widest it has been since 1979, and likely was the widest it has been in 70 years. … [I]ncome was more concentrated at the very top of the income spectrum in 2002 … than in all but six years since the mid-1930s. … Further, some of the tax cuts that were enacted in 2001 are still being phased in. … Those at the top of the income scale continue to receive an exceptionally large share of the nation’s income.”
Although circumstances in the private economy principally influence income disparities, government policy can certainly encourage or mitigate the growing disproportion. David Francis, reporting for the Christian Science Monitor on May 23, 2001, stated, “President Bush’s tax cut promises to have a side effect that bothers many Americans: widening the gap between rich and poor. … But Bush and congressional Republicans rest the tax cut on their own argument of fairness: It is the prosperous who pay the bulk of income taxes, so they should get most of the tax relief.” Tax experts generally agree that the Bush tax cuts enacted since 2001 widen income disparities further than ever before in U.S. history.
SOURCES
George W. Bush, “Remarks by the President in Tax Cut Bill Signing Ceremony” (Washington, DC: The White House, www.whitehouse.gov, June 7, 2001).
David R. Francis, “Bush Tax Cuts Widen US Income Gap: As Congress Works Out Final Details, Levy Reductions Heavily Favor the Wealthy, Already Big Gainers in the 1990s,” Christian Science Monitor (May 23, 2001).
Joel Friedman, “Administration Tax-Cut Rhetoric and Small Businesses” (Washington, DC: Center on Budget and Policy Priorities, September 28, 2004).
William G. Gale, Peter R. Orszag, and Isaac Shapiro, “The Ultimate Burden of the Tax Cuts Once the Tax Cuts are Paid for, Low- and Middle-Income Households Likely to be Net Losers, on Average” (Washington, DC: Center on Budget and Policy Priorities, June 2, 2004).
Robert Greenstein and Isaac Shapiro, “Taking Down the Toll Booth to the Middle Class? Myth and Reality Governing the Bush Tax Plan and Lower-Income Working Families” (Washington, DC: Center on Budget and Policy Priorities, February 6, 2001).
Robert Greenstein and Isaac Shapiro, “The New Definitive CBO Data on Income and Tax Trends” (Washington, DC: Center on Budget and Policy Priorities, September 21, 2003).
James Horney, “New CBO Deficit Estimate Indicates that Without the Tax Cuts, the Budget Would Be Balanced” (Washington, DC: Center on Budget and Policy Priorities, August 8, 2006).
Sue Kirchhoff, “Federal Deficit Hits Record $374.2 Billion” USA Today (October 21, 2003).
Richard Kogan, “War, Tax Cuts, and the Deficit” (Washington, DC: Center on Budget and Policy Priorities, July 8, 2003).
Isaac Shapiro, “New IRS Data Show Income Inequality Is Again On The Rise” (Washington, DC: Center on Budget and Policy Priorities, October 17, 2005).
Isaac Shapiro, Allen Dupree, and James Sly, “An Estimated 12 Million Low- and Moderate-Income Families – with 24 Million Children – Would Not Benefit from Bush Tax Plan” (Washington, DC: Center on Budget and Policy Priorities, February 7, 2001).
Isaac Shapiro and Joel Friedman, “Administration’s Use of ‘Average’ Tax Cut Figures Creates Misleading Impression About the Tax Cuts Most Households Would Receive” (Washington, DC: Center on Budget and Policy Priorities, January 15, 2003).
Isaac Shapiro and Joel Friedman, “Tax Returns: A Comprehensive Assessment of the Bush Administration’s Record on Cutting Taxes” (Washington, DC: Center on Budget and Policy Priorities, April 23, 2004).
Isaac Shapiro and David Kamin, “New Details Emerging On Effects Of Recent Tax Cuts” (Washington, DC: Center on Budget and Policy Priorities, September 13, 2004). Various documents and data from the Urban-Brookings Tax Policy Center at www.taxpolicycenter.org.
Tracing the War on Poverty and Tracing the Bush Tax Cuts were researched and written by Julie Ault and Martin Beck for their project Information for the exhibition Collecting and Collectivity at Conduit Gallery from February 16 to March 22, 2008.