In a recent article, I suggested five revenue raising measures that would yield $573 billion annually and thereby cut significantly into the US budget deficit. Earlier, I suggested legalizing drugs, and I estimated that would yield an additional $32 billion a year. In short, while government expenditures cuts will have to be made, tax increases can also play a significant deficit-reduction role as well. But should be done about the Bush tax cuts? Read on.
The 2001/2003 Bush Tax Cuts
In the 2001/2003 period, Bush got a series of tax cuts through Congress. In retrospect, the timing could not have been worse. As indicated in Table 1, Bush inherited a government surplus from Clinton. And even with tax cuts of $55.2 billion in 2001, the government still ran surplus of $128 billion that year.
But timing is often everything. 9/11 led to the Afghanistan Invasion (October 7, 2001), and that was followed by the Iraq Invasion on March 19, 2003. From 2001 through 2007, the accumulated government deficit was $$1.55 trillion and the Bush tax cuts were $1.26 trillion. In short, the Bush tax cuts amounted to 81% of the government budget deficit accumulated over that period. How much better it would have been if these cuts had been held off until the end of 2008 when they could have been part of the government stimulus to end the recession!
The US Income Tax Base – Some Facts
How is the income tax based distributed among taxpayers? Table 2 provides the data.
The table shows what the tax base is (in bil. US$) by income level, where Quintile 1 is the lowest 20% of US income recipients. It also provides a more detailed breakdown of the top quintile. This breakdown is relevant to the current political debate. Obama talks about not extending the tax cuts for the wealthy, where wealthy are defined as persons earning $250,000 or more. $250,000 does not sound like all that much if you have children going to private schools and college. But remember, Table 1 represents the tax base after exemptions, deductions, etc. I would guess the $250,000 earnings would work out to a tax base of $191,000. So figure Obama is talking about higher taxes on the top 5%, a tax base of $4 trillion.
Who has benefited from the Bush tax cuts? This information is provided in Table 3.
The information is clear and unequivocal; Measured by total tax reductions, per taxpayer, and as a percent of taxpayer income, the Bush tax cuts favored the rich.
The Obama Proposals
Obama is proposing to end the Bush tax cuts for single taxpayers with incomes 0f $200,000 and up and married taxpayers with incomes of $250,000 and up (for details, see Hungerford, op. cit.). It is estimated this would generate $678 billion of new revenues over 10 years, or approximately $70 billion a year.
The Obama proposals have been incorporated along with my earlier proposals in Table 4. The annual figure for Obama’s proposals have been reduced by $20 billion because my proposals already included increasing taxes on capital gains and dividends.
Increased revenues of $656 billion would help. But let’s wait until 2012. Perhaps by then, we can be confident the US economy is emerging from the recession.
The Bush Tax Cuts and the Economy By Thomas L. Hungerford
From Stimulus to Austerity – What Role for Taxes? by Elliott Morss
Austerity Rather than Stimulus? Wait a Minute! by Elliott Morss
A Proposal to Reduce the U.S. Government Deficit by Elliott Morss
New Tax Law Signed GEI News
Tax Law Stimulus by John Lounsbury
The Great Debate©: To Extend or Not to Extend by John Lounsbury