The Bush Tax Cuts: Renewing Prosperity and Enhancing Economic Growth
The Bush tax cuts of 2001 and 2003 were instrumental in fostering the greatest economic expansion since the conclusion of the Second World War, in 1945. On January 1, 2011, the Bush tax cuts are set to terminate.
President Obama, his liberal allies, and the mainstream media have led the American people to believe that these tax cuts have benefited just the wealthiest one percent. If one examines the facts, however, they will notice that it was the middle and lower classes that benefited most from these tax cuts, not the wealthiest one percent. In actuality, the share of taxes paid by the wealthiest one percent of Americans increased by five percent immediately following the passage of the Bush tax cuts.
A failure to renew the Bush tax cuts will have a demonstrable effect on America’s fiscal future and further dissipate any hope of economic recovery. If the Obama Administration fails to renew the Bush tax cuts, we will see a titanic amplification of the Capital Gains tax, the Estate Tax, also known as the “death tax,” federal income tax, and a drastic diminution in consumer spending. The purpose of this article is to examine the effects the Bush tax cuts have had on the American economy since their inauguration in 2001, the reasons why renewal is hypercritical and the consequences of allowing these tax cuts to perish. With the American economy on the precipice of calamity, and little indication of economic rejuvenation in less than three years, the regeneration of the Bush tax cuts is a critical necessity.
History of these Tax Cuts & Analysis of their Impact
In 2001, the United States Congress, at the behest of President George W. Bush, passed the Economic Growth and Tax Relief Reconciliation Act, instituting what was, at the time, the largest tax cut since 1981. Through the passage of this legislation, President Bush was able to ensure that this $1.35 trillion tax cut policy would become a reality.
The Bush tax cuts of 2001 spawned economic growth in a myriad of ways. First, the drastic lessening of the U.S. federal income tax brackets from 15, 28, 31, 36, and 39.6 percent, to 10, 15, 25, 28, 33 and 35 percent enhanced consumer confidence and precipitated greater economic expansion. Aside from fostering greater economic prosperity, the core objective of the Bush tax cuts was to ensure that American citizens would be able to retain more of their own money. It was Bush’s hope that this money would be used to stimulate what was, at the time, a beleaguered economy.
Second, the Bush tax cuts increased the child tax credit from $500 to $1,000. Lastly, and this author argues most importantly, the 2001 Bush tax cuts phased in a colossal decrease in the aforementioned estate tax (“death tax”), and instituted a one year suspension of that tax in 2010. The estate tax is the amount of taxes owned on one’s assets or estate after they have perished. An increase in the estate tax puts a grossly unnecessary burden on the benefactor’s family. World renowned economists Arthur Laffer and Stephen Moore, in their seminal new tome, Return to Prosperity: How America Can Regain its Economic Superpower Status, note that President Barack Obama intends to prolong, not eliminate the estate tax.
As aforementioned, the estate tax is currently at 0%, and is set to expire in 2010. By prolonging this superfluous tax, the tax will return to 45% on all estates worth more than $3.5 million. For the vast majority of Americans, this tax is inconsequential, as the vast majority of them will never accumulate an estate of $3.5 million. Dick Morris, Bill Clinton’s former chief campaign strategist, and a newly-enshrined Republican, noted that the estate tax is only paid by the top two percent of American families. As the reader can see, if the Bush tax cuts are not renewed the estate tax would be another subtle tax directed only at the wealthier classes of our society.
An increase in the estate tax equates to less investment by those in the upper income brackets, and ultimately, a denigration of U.S. economic growth and productivity. For the sake of American fiscal and economic stability, it is important that the estate tax is eradicated. While the 2001 tax cuts labored vociferously to balance the budget and restore American prosperity, they were unsuccessful in meeting their intended objective, as a result of the heinous attacks of September 11, 2001.
President Bush and the Republican Congress, in an effort to minimize the severity of one of the most inexorable economic recessions in American history, passed a second tax cut in early 2003. The Jobs Growth and Tax Relief Reconciliation Act of 2003 initiated a tax cut proposal of $550 billion, coupled with the aforementioned $1.35 trillion dollar tax cut of 2001. Upon the passage of this second tax cut, the American economy soared to new heights. In fact, from 2003-2008, America witnessed its greatest economic expansion since the presidency of Theodore Roosevelt.
The 2003 tax cuts comprised a plethora of decisive features. First, the Bush tax cuts provided a significant income tax reduction for married couples. This feature would later go on to spark controversy as many same-sex couples argued that they are deserving of this tax benefit, though same-sex marriage is illegal in nearly every state. Second, the 2003 tax cut precipitously increased the child tax credit from $600 to $1,000 per child. The increase in the child tax credit was a direct result of President Bush’s staunch support of family values. Third, the tax cut ended the longstanding tradition of double taxation of income and investments. As a result, the stock market and 401K plans saw a marked increase. Furthermore, in October of 2006, the Dow Jones Industrial Average reached its pinnacle, exceeding 15,000 points. If the Bush tax cuts are not renewed, these numbers will plummet even lower, due to the reinstatement of double taxation.
Lastly, the Capital Gains Tax diminished exponentially as a result of the 2003 tax cuts. The reduction in the Capital Gains Tax rate from 20 to 15 percent created $745 billion in new government revenue over a four-year period. President Obama has made it clear on numerous occasions that he is poised to increase the Capital Gains Tax rate from 15 percent to an atrocious 30 percent. As the reader can see, increasing the Capital Gains Tax rate will stifle economic productivity and ultimately lessen the government’s revenue intake. Millions of American families will be in a state of financial ruin if the Bush tax cuts are not renewed.
One of the common misnomers about tax cuts is that they benefit only the wealthiest citizens. Much to the chagrin of President Obama and congressional liberals, the argument that the Bush tax cuts only benefited with wealthiest one-percent is erroneous. In fact, the non-partisan Bureau of Labor statistics notes that nearly 92 million taxpayers received a tax cut of $1,083 in fiscal year 2003. That number has increased in recent years, due to inflation, and the framework of the legislation. Moreover, 46 million married couples received an average tax cut of $1,716. Furthermore, 34 million families with children received a tax cut of nearly $1,473. What liberal pundits, polemicists, and politicians neglect to cite is that the most affluent Americans received substantially less money from the 2003 tax cuts than their lower and middle class brethren, and ultimately ended up paying more money in taxes than the year prior.
Economists Stephen Moore and Arthur Laffer, in their new book Return to Prosperity: How America Can Regain its Economic Superpower Status, wrote, “In 2005, the percentage of income taxes (which included dividends and capital gains) paid by the richest one percent hit an all time high of 39 percent. The top five percent paid nearly 60 percent of their income tax, close to an all-time record.” As these statistics indicate, the 2003 Bush tax cuts benefited lower and middle income citizens more than those of more exorbitant financial means. Allowing the Bush tax cuts to expire would weaken the financial stability of middle class Americans, deter consumer confidence, and prolong our economic recession.
To Approve or Not Approve, That is not the question.
The Obama Administration’s desire to deal a crushing blow to the Bush tax cuts would have disastrous and hap hazardous effects on the American economy. The Heritage Foundation, the nation’s preeminent conservative think-tank, notes that if the Bush tax cuts are not reapproved by the 112th Congress, the 10 percent tax bracket, one that benefits low-income Americans, would disappear, ultimately forcing the nation’s most desolate citizens to pay more of their already meager salaries in income tax. Taxpayers with children will lose well over 50% of their child tax credits. Third, taxes on dividends and capital gains will see a precipitous increase; and, lastly, the aforementioned estate tax, or death tax, would increase from zero to fifty-five percent. All of these factors provide excellent examples of why it is crucial to extend the Bush tax cuts.
The Heritage Foundation contends that if the Bush tax cuts are reapproved, total employment will increase by 1,087,000 jobs per year; the nation’s Gross Domestic Product (GDP) will be $11 billion higher after inflation; personal savings will grow by $163 billion per year, after inflation; and, most outstandingly, After-tax household income will grow by an average of $274 billion per year. The latter statistics prove that the Bush tax cuts will restore American prosperity, restore fiscal order, and bring about an end to this obstinate economic recession.
Aside from reforming our dilapidated and outmoded entitlement system, balancing the budget and cutting spending, extending the Bush tax cuts is the most fundamental priority of the Obama administration this year. On January 1, 2011, the Capital Gains tax rate will increase, the estate tax, which is currently defunct, will rise to 55%, the tax bracket for the most financially strapped Americans will increase, and the economy will remain in recession. If America wants to remain the most affluent nation in the history of the world, it is hypercritical that the Bush tax cuts are extended for another ten years. With Americans growing more petulant daily with the state of country’s financial situation, it appears that the Bush tax cuts have an excellent chance of being extended for a lengthy period of time. If liberal troglodytes are at all concerned about their political fortunes, they would support extension of the Bush tax cuts. Renewal of the Bush tax cuts will restore consumer confidence, fiscal sanity, lead to a balanced budget, end the economic recession, and ultimately, restore American prosperity. It cannot be repeated enough.