This is the 10th anniversary day for the first round of Bush-era tax cuts. Whether an occasion to celebrate depends on how you feel about the results.
On June 7, 2001, President Bush the Second signed into law a package that reduced income tax rates to the levels we’ve got now — thanks to the two-year extension President Obama and Congressional Republicans agreed on last December.
Also in the package were a number of other changes in the tax code, including a repeal of the deductions limit for high-income filers, a partial fix of the so-called marriage penalty and a phase-out of the estate tax — the last brought back from the grave, but in weakened form as part of last December’s deal.
Altogether, lost revenues totaled an estimated $1.35 trillion for the first 10 years.
Bush had campaigned on a promise to return what then seemed a large, growing budget surplus to the American taxpayers who had created it. And surpluses were still projected when the tax cut package began wending its way through Congress.
But the boom of the late Clinton years had given way to a recession. The surplus was shrinking, as tax revenues dropped. The unemployment rate was rising. So the tax cuts were now justified largely as a way to stimulate the economy. Sound familiar?
Most (but not all) Congressional Democrats sounded alarm bells at the size of the package. Also at the distribution of benefits. Because, of course, the reduced tax rates left much more money in the pockets of the wealthiest than in those of low and middle-income filers.
Some Senate Republicans also choked at the price tag. But at the end of the day, key members of both parties forged a compromise. The President declared a victory. And two years later, Congress passed a second round of tax cuts, including the large reductions in capital gains and dividends rates that were also extended last December.
Well, that was then and this is now. And many things have happened since 2001 — some more predictable than others.
Another recession predictable — though probably not as large as the one still afflicting our economy. Stresses on Social Security and Medicare predictable.
But who could have known, 10 years ago today, that some rogue fanatics were about to crash planes into the World Trade Center and the Pentagon? Or that President Bush would decide the response should include invasions of two foreign countries?
The surplus has turned into a ballooning deficit. We’re told that the biggest drivers, in the long run, are rising health care costs.
But, according to analyses by the Center on Budget and Policy Priorities, the Bush tax cuts are the single largest factor in what the country will owe in 2019, barring significant policy changes.
Changes there will be, however. And they’ll surely be more drastic than they’d have been if President Bush had decided to commit more to debt reduction than tax reduction. Which isn’t to say the current crop of Congressional Republicans wouldn’t have aimed for big spending cuts if he had.
Here’s another thing that’s happened in the last 10 years. The income gap between the wealthiest and the rest of us has turned into a yawning gulf.
According to another CBPP analysis, the average after-tax income of the wealthiest 1% of households rose by an inflation-adjusted 281% — $973,100 more per household — between 1979 and 2007.
By contrast, households in the middle fifth of the income scale gained $11,200 or 25%. The bottom fifth gained, on average, 16% — a measly $2,400.
A major factor here is that the wealthiest 1% simply made a whole lot more money. Between 2002 and 2007, their incomes grew 10 times faster than those in the bottom 90% of the income scale.
But the Bush tax cuts played a role too. In 2007, they enabled that lucky 1% to hold onto an extra $41,007, raising their after-tax income by 5%.* Those in the bottom fifth of the income scale received cuts averaging $24 — an after-tax income boost of 0.4%.
And (hold onto your hat) the 400 wealthiest taxpayers in the country paid, on average, 16.6% of their income in individual federal income taxes — down from 30% in 1995. The difference, says CBPP, amounts to an average tax cut per filer of $46 million. And that’s just for 2007.
So, yes, everyone with earned income got a tax break 10 years ago. Many got several. And many got some more two years later. But are we, as a nation, better off?
Perhaps, as an old friend says, what you see depends on where you stand. I’ll bet the tax cuts look better on the deck of a yacht than in a food pantry line.
* More recent figures from the Economic Policy Institute show that, recession notwithstanding, tax cuts for the top 1% of filers increased to an average of $520,000 in 2010.