the bush tax cuts. how well did they actually work?

Discussion in 'Economics' started by Free Thinker, Sep 26, 2010.

  1. all the debate about keeping the bush tax cuts for the rich is missing the point. an important question is how well did they work. did they increase economic activity and wages? so how did they do. turns out not so good.
    So How Did the Bush Tax Cuts Work Out for the Economy?
    The 2008 income tax data are now in, so we can assess the fulfillment of the Republican promise that tax cuts would produce widespread prosperity by looking at all the years of the George W. Bush presidency.

    Just as they did in 2000, the Republicans are running this year on an economic platform of tax cuts, especially making the tax cuts permanent for the richest among us. So how did the tax cuts work out? My analysis of the new data, with all figures in 2008 dollars:

    Total income was $2.74 trillion less during the eight Bush years than if incomes had stayed at 2000 levels.

    That much additional income would have more than made up for the lack of demand that keeps us mired in the Great Recession. That would mean no need for a stimulus, although it would not have affected the last administration's interfering with market capitalism by bailing out irresponsible Wall Streeters instead of letting the market determine their fortunes.

    In only two years was total income up, but even when those years are combined they exceed the declines in only one of the other six years.

    Even if we limit the analysis by starting in 2003, when the dividend and capital gains tax cuts began, through the peak year of 2007, the result is still less income than at the 2000 level. Total income was down $951 billion during those four years.

    Average incomes fell. Average taxpayer income was down $3,512, or 5.7 percent, in 2008 compared with 2000, President Bush's own benchmark year for his promises of prosperity through tax cuts.

    Had incomes stayed at 2000 levels, the average taxpayer would have earned almost $21,000 more over those eight years. That's almost $50 per week.

    The changes in average and total incomes are detailed on the next page in Table 1, the first of four tables analyzing the whole data.

    Now that we have looked at the whole eight-year period, what does the new data show about 2008, the worst recession ear since the 1930s, show when compared to the peak year of 2007, when the average taxpayer made $63,096, which was 2.5 percent more than in 2000.

    In only two of the eight Bush years, 2006 and 2007, were average incomes higher than in 2000, but the gains were highly concentrated at the top. Of the total increase in income in 2007 over that in 2005, nearly 30 percent went to taxpayers who made $1 million or more.

    Now surely some will say that it is not fair to saddle George W. Bush and those who supported his tax cuts with the economic figures from 2001 and 2008. The first would be on the theory that President Clinton should be charged for that year (just as Bush should be charged with 2009, the first year of the Obama administration). The second is on less solid ground, but let's consider it for the sake of argument.

    Just measuring the second through seventh years we find that total income was still nearly $2 trillion lower than if 2000 level income continued. Stacking the deck in President George W. Bush's favor does not change the awful performance or even soften it much.

    The tax cuts cost $1.8 trillion in the first eight years, according to an analysis by the Tax Policy Center, whose reliability the last administration went out of its way to praise. Those cuts were heavily weighted toward the people candidate George W. Bush famously called "haves and the have-mores . . . some people call you the elite. I call you my base."
  2. bpcnabe


    They should let ALL the tax cuts expire, not just for the rich.
  3. The less in taxes that the ultra rich have to pay, the more money they have to spend in order to lobby the congress to further perpetuate their scam.

    As I recall when Ike was president, the top income tax rate was 91% and in 1964 it was 94%. Now its 35% and going to only 40%. What a joke.

    We need a graduated income tax that starts at 0% and goes to 99%. Then perhaps more money would end up in the pockets of stock holders, instead of in the pockets of lobbyists and politicians.
  4. Div_Arb


    Forget these stupid Bush tax cuts - we need to overhaul the entire tax system now. Let's make earning, spending and saving money equal in terms of the tax code.

    Here's a very abbreviated version of what i propose:
    10% flat income tax for individuals (no corporate income tax) on any amounts over $25k for individuals, $40k for married couples and additional $5k per child
    10% flat capital gains tax
    10% national consumption tax (ex personal real estate)
    10% import tax (pay to play)

    Once we have this tax system in place, let's adjust our spending to where there is a 5% surplus in our national budget when GDP is over 3% and 5% deficit when GDP is below 0%.

    BOOM! USA regains our global competitive edge.
  5. A tax every time you buy and sell say...stocks
  6. Div_Arb


    Transaction taxes are one of the top-ten dumbest ideas ever conceived by human beings. I don't think I need to explain why.

  7. This issue has been discussed here before. It's not that the Bush tax cuts were magical. They weren't. They had a lot of flaws from a supply side perspective. There were far too little in the way of incentives and far too much in the way of benefits to people who were paying little if any in taxes to begin with.

    The problem is that any repeal is likely to retain the least productive aspects and jettison the beneficial aspects. Freeze the status quo until 2012 and hope we can elect a non-marxist president.
  8. mss


    This slide summarizes my view of the value of Bush Tax Cuts.
  9. WANT to give affluent households a present worth $700 billion over the next decade? In a period of high unemployment and fiscal austerity, this idea may seem laughable. Amazingly, though, it is getting traction in Washington.

    am referring, of course, to the current debate about whether to extend all, or just some, of the tax cuts of President George W. Bush — cuts that are due to expire at year-end. They’re expiring because the only way they could be enacted initially was by pretending that they were temporary.

    In this situation, it’s not clear what should be called a tax “cut.” If the temporary law is allowed to expire as planned, does that represent a return to normal, or a tax increase? Conversely, if some parts of the current rates are extended, should those count as a tax cut?

    Psychologists call these descriptive choices “framing.” No one is proposing that tax rates be lower than they are now, so the question is whether some people should pay more, and, if so, who.

    President Obama has proposed retaining the current rates on incomes up to $200,000 for individuals and $250,000 for couples. Under this plan, everyone would receive a tax “cut” relative to the rates in effect in the Clinton era. For a family with a $250,000 income or more, the cut would be about $6,000, because its first $250,000 of income would be subject to the current, lower rate. But such families would have a higher bill than they do now.

    With the exception of the House minority leader, John Boehner, the Republican leadership has drawn a line in the sand, saying it will oppose Mr. Obama’s bill unless all taxpayers remain at current rates. Although it wouldn’t put it this way, the Republican position is, in effect, that if the rich can’t share in the bounty, rates should rise for everyone.

    They offer three arguments to support their view.

    The first is that it is folly to raise taxes in a weak economy. There is some merit to this argument, of course, but economic policy is always about trade-offs.

    Tax cuts are one of many ways to stimulate the economy. Building infrastructure, for example, is another. We have to choose. And if the primary goal is stimulating the economy, tax breaks to the rich are simply not cost-effective. Numerous studies have shown that the poor spend nearly all of their income, while the rich save a significant amount of theirs.

    The second argument is that not extending the tax cuts to high-income earners would impose an excessive burden on small businesses. Here, however, we fall into a statistical morass. The administration points out that only 3 percent of all businesses earn enough to have to pay any additional tax. But Republicans reply that those 3 percent of businesses earn 47 percent of the income from this entire sector, meaning that the higher taxes would apply to the bulk of small-business income.

    Which is the most relevant number?

    To understand these statistics, we need to know how small business is defined. The data come from tax returns, and the definition of a “small” business is one that is organized so that all the profits pass through to the owners, who then report these profits as income on their personal tax returns.

    Partnerships and firms structured as S corporations are examples. This category can include businesses as diverse as barbershops, car washes, hedge funds and law firms. Goldman Sachs was in this category before it became a public company. And the fact that 3 percent of the businesses earn nearly half of the money is precisely what many people are concerned about: growing income inequality.

    Which brings us to the third argument. Conservatives say that to do anything other than extending tax cuts to everyone would amount to “class warfare.”

    The best response to that notion comes from Warren E. Buffett: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

    Thomas Piketty and Emmanuel Saez, two academic economists, provide data to back up Mr. Buffett’s view. They show that the proportion of income earned by the top 1 percent of American families was about 10 percent of the national total from 1945 to 1979. Since 1980, that share has doubled, reaching about 20 percent in 2008 — or more, if capital gains are included.

    The growth rate has been even faster for the ultrarich — those in the top one-hundredth of 1 percent in income.

    Other segments of society, meanwhile, are losing out, with their share of the total declining, and their real incomes remaining stagnant.

    And what about incentives? Will the owners of the profitable small businesses work less hard, or hire fewer people, if their own after-tax income falls? This is a much-researched question, and the weight of current evidence suggests that we shouldn’t expect significant real reductions in economic activity if rates change in the range under discussion.

    There is another possible argument for including the rich in these tax cuts, one based on “fairness.” By this reasoning, the wealthy are entitled to low tax rates because they have temporarily had them, and it would now be unfair to take them back.

    But by that same argument, unemployment insurance should never expire, and every day should be your birthday. “Temporary” has no meaning if it bestows a permanent right.

    The question comes down to whether we want a society in which the rich take an ever-increasing share of the pie, or prefer to return to conditions that allow all classes to anticipate an increasing standard of living. Demanding that the rich get a tax cut as a condition for tax relief for others is simply elitist. Tea Partiers, take note.
  10. Maverick74


    You are asking the wrong question Vhehn. It's not whether they work but is it constitutional and does it promote economic liberty. You know, liberals like you are all about civil liberties but not economic liberties. The hypocrisy is amusing especially from someone who changed their handle to free thinker.

    I guess it's all a moot point anyway since the rich pay close to zero taxes anyway as do the poor. It's only the middle class that pay taxes. Sounds fair to me.

    Oh yeah and when we had those high taxes under Ike and Jack, nobody actually paid those rates. There was a loop hole put in so that the 12 people who owed them were able to deduct enough to pay a fraction of that.
    #10     Sep 26, 2010