Who’s paying for the 2001 and 2003 tax cuts?

Posted on July 29th, 2010 by ecthompson

I just don’t remember folks taking to the streets and complaining about Bush’s tax cuts for the rich. I don’t remember the Tea Party folks getting all upset because these tax cuts weren’t paid for. Republicans, for the most part, were happy to vote for tax cuts for the rich with no offsets. Unemployment benefits, though, now that’s another story.

From CBPP:

The biggest changes in tax policy enacted under President George W. Bush were the 2001 and 2003 tax cuts, often referred to as the “Bush tax cuts” but formally named the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003.

What Are Their Main Features?
The 2001 and 2003 tax cuts reduced the top four marginal income tax rates (see table), as well as the tax rate on capital gains and dividends. They also phased out the estate tax, repealing it entirely in 2010.

PolicyBasics TaxCuts IncomeTaxRate Whos paying for the 2001 and 2003 tax cuts?

Bush Tax Cuts

In addition, the tax cuts included three components often referred to as “middle-class” tax cuts, though many higher-income families benefit from them as well. One provision created a new bottom income tax rate of 10 percent for some of the income previously taxed at a 15 percent rate. Another provision increased the Child Tax Credit from $500 to $1,000 per child and made many low-income working families eligible for the credit. The third provision was “marriage penalty relief” — a set of changes that reduced taxes for some married couples.
Nearly all of the tax cuts are scheduled to expire at the end of 2010.

How Much Do They Cost?
The 2001 and 2003 tax cuts added about $1.7 trillion to deficits between 2001 and 2008. Because they been financed by borrowing — which increases the national debt — this figure includes the extra interest costs resulting from that additional debt.

This figure also includes the cost of “patching” the Alternative Minimum Tax to keep the tax from hitting millions of upper-middle-class households, a problem the tax cuts helped cause. (See Policy Basics: The Alternative Minimum Tax.)

Over the next decade (2009-2018), making the tax cuts permanent would cost $4.4 trillion, assuming that the tax cuts remain deficit-financed.

Whom Do They Benefit The Most?
A very large share of the value of the tax cuts flows to high-income taxpayers. In fact, the top 1 percent of households — a group with incomes over $450,000 in 2008 — would receive 31 percent of the tax cuts’ benefits over the next ten years if the tax cuts were made permanent.

Tags: Bush Administration, Economy // View Comments

  • Joe White
    Dr Thompson wrote:

    "that's not the topic. the topic is conservatives and wanting spending offsets only when it is convenient. "

    The point that you are missing is that the Bush tax cuts actually resulted in INCREASED revenue to the federal government.

    When the 2003 tax cuts kicked in, the federal revenue increased from 1.88 trillion in 2004 to 2.52 trillion in 2008. That's a 640 billion increase (34% increase) in incoming revenue in just 4 years.

    The problem isn't that tax cuts weren't 'paid for' and supposedly required 'spending offsets'. They obviously paid for themselves by generating ADDITIONAL income.

    The problem is that the extra money was spent. And then some.
  • as far as I know, tax cuts and never pay for themselves.

    http://www.cbpp.org/cms/?fa=view&id=165

    Thanks for your comments.
  • Joe White
    Unfortunately, your link is from 2006 and doesnt show what the actual revenue was from 2006, 2007, 2008.

    The facts, as it turns out, prove your authors' pessimistic prophecies to be incorrect.

    Revenue didn't just 'return to the previous peak levels' (2 trillion) but actually surged past that to over 2.5 trillion.
  • http://krugman.blogs.nytimes.com/2010/07/13/invincible-ignorance/

    http://www.epi.org/analysis_and_opinion/entry/tax_cuts_wont_create_jobs/

    http://www.time.com/time/magazine/article/0,9171,1692027,00.html

    http://www.cbpp.org/cms/?fa=view&id=507

    From the CBPP:

    The 2001 and 2003 tax cuts have not paid for themselves. There is no evidence that the tax cuts caused any increase in economic growth, let alone growth sufficient to offset their cost. In fact, the 2001-2007 economic expansion was among the weakest since World War II with regard to overall economic growth. [2] Moreover, revenue growth was very poor during 2001-2007. Real per-capita revenues fell deeply in 2001, 2002, and 2003 and have since risen to barely 2 percent above their 2001 level. Over the course of other postwar economic expansions, they grew by an average of 12 percent.[3]

    Previous tax cuts did not pay for themselves either. In 1981, when Congress substantially loweredmarginal income tax rates on the well-off, supporters claimed the cuts would boost economic growth. In 1990 and 1993, when Congress raised marginal income tax rates on the well-off, opponents claimed the increases would harm the economy.

    In fact, the economy grew at about the same rate in the 1990s, following tax increases, as in the 1980s, following a large tax cut.[4] And revenues grew twice as fast in the in the 1990s (3.5 percent in real per-capita terms) as in the 1980s (1.5 percent).[5]

  • Joe White
    You (and your liberal counterparts at CBPP) are talking about two different things as if they are the same. They are not.

    Economic growth in the American economy at large is not the same as federal revenue growth.

    The tax cuts were followed by a 34% in growth in federal revenue. In other words, any revenue that was 'lost' to the federal Treasury from tax cuts was regained..... and then 34% more flowed in. Therefore , no 'offsets' are required to 'pay for' the tax cuts because no revenue shortfall occurred. The feds had more to spend..... 34% more.....not less to spend. Comprende?

    CBPP's summary: "Tax cuts lose revenue" is disconnected from reality, because the Treasury took in 34% MORE revenue after the tax cuts.

    Economic growth is a completely different thing. And we can argue whether or not tax cuts caused the economic growth in any given period of time, but that is a completely different question than whether tax cuts are 'paid for' or not.
  • [quote]I just don’t remember folks taking to the streets and complaining about Bush’s tax cuts for the rich. I don’t remember the Tea Party folks getting all upset because these tax cuts weren’t paid for.[/quote]

    I told you before - with so many Tea Party people as working men and women they only had time to protest on Saturdays and Sundays. Every time they went to the local park service to get a march permit - they found that the ANTI-WAR PROTESTERS had taken all of the slots.

    Your real question should be: "Where are all of the ANTI-WAR PROTESTERS"? July was the deadliest month in Afghanistan in the history of the war. Where did THESE protests go to?

    [quote]
    Republicans, for the most part, were happy to vote for tax cuts for the rich with no offsets.[/quote]

    Were there any OFFSETS in the deficit based "Economic Stimulus" spending that you just touted in your post above?

    Do you see the irony? Bush was said to be "Spending like a drunken sailor" when he spent deficit money.

    Obama supporters like you and Krugman demand that Obama spend MORE deficit money because the economy has been damaged by Bush.

    I think I get it now.
  • Keith
    It seems like this discussion can only go in circles until we come to a common understanding for how money derives it's value.

    If money is effectively the property of the US government, which it disperses, wisely preferably, to motivate the masses to contribute some effort to the benefit society--then we can talk about who gets what share of it, whether there are any circumstances for someone to have a larger share, and what to do if someone's share is deemed too large.

    If money is the representation of the value assigned by society at large (the market) to the unique output (product or service) of a person's effort+expertise--then it can't be discussed in terms of shares, because it's more like a dynamic field of energy that flows organically. Attempting to divide it up and siphon it from one place to another seems a lot like smothering a flame.

    Government is in the unique position to either create or seize money without respect to how society actually values it's output. In one sense, we do "buy" what they are selling with our votes, but our selection options are very limited and we really can't just pass on the purchase. Collectively, we must pick, so our ultimate selection is never a true representation of how we value their output.
  • Joe White
    Since the bottom 47% of wage earners pay ZERO income tax, pray tell us how you would give them a 'tax cut' , Dr Thompson.

    http://www.cbsnews.com/stories/2010/04/07/national/main6372418.shtml

    Hello?

    You can only give a 'tax cut' to those who pay taxes.
  • You are intentionally running around the point. Gerald Ford gave a tax rebate to those at the bottom. Bush decided to give the money to the top 10% and told the rest of the country up yours.

    the purpose of this post was to point out the obvious, Republicans are not really interested in the deficit or balancing the budget. They're interested in giving money to the top 10%. They did that. Now, when the president is trying to help those around unemployment, don't come talking about the deficit. Bush added $4.4 trillion to the deficit without a peep from the deficit peacocks. Oh, to make matters worse, this wasn't a single vote but instead was two different votes.

    Maybe, tomorrow, I'll look at the death tax and how the deficit peacocks were silent again.

    Thanks for your comments.
  • Joe White
    No, tax cuts IS the point. And you can't get a tax cut if you pay NO tax.

    Hello?

    Those at the bottom already can qualify for over $5000 in EITC, in addition to paying zero tax. Please don't tell me you don't know this.

    The post you quoted shows that all tax brackets were lowered, so don't give me this 'he gave money only to the top 10% and cheated the rest of the country'.

    Respectfully, that's garbage, sir.

    The Bush deficits came not from cutting taxes but from increased spending. If spending levels had stayed constant, there would've been no increased debt.

    The increased spending falls into two categories, defense and non-defense.

    Defense spending increased because the Clinton's had left the military in a severe state of disrepair. You might educate yourself as to the evil effects of Clinton's neglect here -- http://www.alamo-girl.com/0013.htm

    So in order to defend ourselves in the aftermath of 9/11, defense spending had to be substantially increased.

    Non-defense spending increased also and Bush was severely criticized by his own party for doing so. But you have a short memory, right?
  • the tax cuts could have been easily weighted to the middle class (those making between $35,000 and $100,000, for example) but they weren't. Why? because it wasn't about them. It was about the rich.

    Joe, thanks for your comments.
  • Joe White
    It's real simple

    If Bob pays $1,000,000 in taxes every year and Bill pays $100 in taxes every year, and they both get a 10% tax cut, then Bob is gonna get a 'larger' tax cut because he was paying more to start with.

    You can demagogue the issue all day long, Dr Thompson, but the fact is that lower wage earners 'need' no tax cut if they pay NO taxes to begin with, and middle class earners DID get a tax cut (although it was 'smaller' because they pay less taxes to start with).

    You know it and I know it.

    Democrats play fast and loose with the numbers and complain about 'the wealthy got a larger tax cut'. Duh. They paid more.

    btw, I have an income that is 'below the line' most years, so I'm not just a rich guy defending my riches.
  • I love the way you stay on a subject and never get off of it. Low-wage earners pay taxes. Just because they don't pay income taxes does not mean they did not deserve a tax cut. The tax cuts for low income earners is a better stimulus to the economy, which as you recall was the purpose of the tax cut, then tax cuts for the rich. Secondly, using your own example, in a society that is not tilted towards the advantaged, the percentage of income tax cut for the middle class would be higher than the percentage of income tax cut for the upper class.

    Remember, George W. Bush wanted to stimulate the economy. His plan was to cut taxes.

    Again, the original purpose of my post was to point out the hypocrisy that these deficit hawks (deficit peacocks) are showing today. They tell us that they're worried about the deficit. I've given one example in which most of whom were still in Congress in which they did not do anything about the deficit but happily handed out money. The money was handed out to both the middle-class and the upper class. The upper class got the vast majority of the money. Whether they pay the vast majority of taxes is not germane to this discussion. (It is clear that the rich pay the vast majority of taxes. They should pay the vast majority of taxes because they enjoy the vast majority of the privileges that this country has to offer.) I've given just one example of the hypocrisy. The hypocrisy is not limited to Republicans.the so-called, "blue dog Democrats" where the same hypocritical hat. We saw another example of the hypocrisy just this week --$33 billion to supplement the war effort. Almost no hint of anybody complaining about no offsets.
  • Joe White
    Dr Thompson wrote:
    "The upper class got the vast majority of the money. Whether they pay the vast majority of taxes is not germane to this discussion."

    Of course its germane if you're going to continue to complain that 'the rich got the most money' or 'the rich got the biggest tax cut'.

    How could it not be germane?

    The core of the Democrat argument against Bush's tax cuts now, and then, is 'the rich got the biggest tax cut' and 'the rich got the most money'.

    Dont bring it up and then complain 'uh that's not germane'.

  • what was the purpose of the tax cuts? if the purpose was to give rich folks their money back then it was great. It worked like a charm. If the purpose was to stimulate an economy out of a recession then it wasn't the best strategy.

    The purpose of this post was to point out that conservatives only care about the deficit when it is opposing things that they don't like. You are trying to change the subject to the rich pay more taxes and therefore should get more of the tax cut. that's not the topic. the topic is conservatives and wanting spending offsets only when it is convenient.
  • Joe White
    Dr Thompson wrote:

    "If the purpose was to stimulate an economy out of a recession then it wasn't the best strategy. "

    Actually you ought to look at the half dozen years of economic recovery after the recession early in Bush's term.

    Yeah, it worked.
  • I just thought this was interesting. Find out how much you will owe after the tax cuts expire. I don't know enough about this subject currently to offer much in comments, and I make littel enough that my income isn't affected either way, I would just like other's feedback though on this. http://www.mytaxburden.org/
  • Correction on previous post: This will will produce a rough guess of how much you'll owe under the status quo, full extension of the Bush tax cuts, and Obama's proposals.

  • thanks for your comments. I appreciate you stopping by.
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