A Taxing Presidency: A Critique of the George W. Bush Tax Policy
This article is part of the compilation, Years of Tumult: Retrospective Analyses of the George W. Bush Presidency, composed by a class of Northeastern Political Science students and edited by Chris Federici and Nicole Wilkins.
Now that President George W. Bush has completed his two terms in office, it is only natural that political scientists and historians are in the process of completing retrospective analyses of the last eight years of leadership under the Republican president. From the start, Bush made his intentions very clear by outlining his goal to lower taxes for every American citizen. Bush made this policy central in his campaign for the presidency and then sought to get tax cuts through Congress immediately upon assuming office. The Economic Growth and Tax Relief Act of 2001 (hereafter Tax Policy) was the first tax reform policy that President Bush pushed through Congress and was followed by more tax cuts in 2003. The tax policies of President Bush did more to enhance the pockets of wealthy Americans instead of the lower to middle class families on the United States.
President Bush toured the country upon assuming office in 2001 in order to gain American public support for his tax cut initiatives. The White House promoted the Tax Policy as a sweeping change for the lower to middle class families of America: “In terms of who will have their life changed the most by a tax cut, it’s clearly the people at the low and middle end of the income scale, because this represents a huge surge in their income.”1 Although President Bush advertised the Tax Policy as an across the board cut of taxes for all Americans, the reality is that the Tax Policy, and subsequent tax cut initiatives, pushed by President Bush and enacted by Congress gave the greatest amount of benefits to the top tax bracket, which houses the wealthiest Americans. In addition to the income tax, President Bush imposed other tax cuts that were aimed to help big businesses and wealthy Americans keep more of their money.
This essay will look at how President Bush gained support for his tax policies, how he was able to push them through Congress, what the tax policies did exactly, and what the long term effects of his tax policies are. Despite the fact that the media demonized the tax policies of the Bush administration, most people do not know the exact nature of the tax policies, how they came to be law, or what their actual effects were. In an effort to clear up the confusion, this essay will approach the tax policies of the Bush administration step by step, with no detail left uncovered.
Mustering Support for the Tax Policy
During the campaign for the presidency, Bush relied heavily upon his promise to reduce taxes to get him elected; Bush believed that tax cuts were the answer to all economic issues, whether they would stimulate a recession by encouraging Americans to spend more or reward citizens for a booming economy.2 Bush spent an amazing amount of time demonizing the budget surplus that had been created by the tax policy of the Clinton Administration in order to lay the groundwork for the tax cuts he so desperately wanted to enact during his presidency. Still, Bush had a considerable amount of work ahead of him in order to convince the country and Congress to enact his tax cuts. Correlating with his goal to reward the American public, Bush advocated “supply-side” economics which dictates that lower income taxes supply Americans with larger discretionary spending budgets, which eventually facilitates a consumer driven economy. This doctrine was denounced as “voodoo economics” by George H. W. Bush while he was in office and has had a long history of controversy.3
Onc, in retaliation e he had taken office, President Bush hired Karl Rove and Karen Hughes as “strategic thinkers” to ensure that public knowledge and support of Bush initiatives was prevalent.4 In an effort to pass his Tax Policy, President Bush toured the country, gave speeches in key states and did his best to rally the support of the public. President Bush personally attacked members of Congress and purposefully withheld support from Republicans if they did not support the Tax Policy.5 Although this political strategy seemed appropriate, the methods Bush implemented to pressure Congressmen into voting for his bill, or punishing them for not voting for it, actually alienated many members of Congress. The strategy became so forceful that Senator James Jeffords of Vermont resigned from the Republican Party and became an Independent. The Bush administration’s efforts to eliminate a dairy program that was vital to the state of Vermont, in retaliation for his vote in favor of a smaller version of the Tax Policy, became too much for the senator to stomach.6 The methods used by Bush and his administration to acquire votes worked primarily along party lines and almost always alienated Democrats.
In order to directly persuade the public, President Bush held numerous press conferences and question and answer forums. The audiences at the forums could only enter the venue if they were supporters of Bush and were required to look like ordinary citizens, usually dressed in business casual attire. They were also required to ask specific questions that Bush was prepared to answer.7 This setting allowed for a positively skewed perception of the Tax Policy to reach Americans through the mass media. Through the “public” forums, press conferences, and media coverage, President Bush and his administration informed the public that they would receive a tax cut of $1,100 if the Tax Policy was enacted.8 This number proved to be inaccurate since many Americans did not receive any tax cut, since the 15 percent tax bracket remained intact, and most families only received a tax cut of about $100 per year. In reality, the reduction of the top tax bracket accounted for the inflated average that was reported to the American public. The Tax Policy that the Bush administration put forth was promoted as a way to repay the American public for all of the taxes the Clinton administration had taken from them. Since a surplus in the budget existed when George W. Bush took office, he believed it was only natural that the citizens of the United States received this money in the form of tax cuts, tax exemptions, and tax credits.9
The Tax Policy of 2001 and the Tax Cuts of 2003
Despite his relentless campaigning, President Bush did not receive much public support for his tax policies and therefore could not expect the Democrats to vote for his bill. In order to get the votes he needed to pass the Tax Policy bill, President Bush was forced to alter his proposed tax plan and accept smaller tax cuts that equaled $320 billion, allow for the cuts to be temporary, and have the tax cuts slowly phased in through 2006. President Bush had hoped for a tax cut that would equal $726 billion, eliminate stock dividend taxes, and be permanent.10 President Bush was forced to compromise on his Tax Policy because otherwise he would have suffered a strategic loss in Congress on his first major initiative as President. In order to portray a united Republican Party and a victory in Congress, President Bush pushed the Tax Policy through with the major revisions.11
The $320 billion tax cut the American public received was projected, after Congress had enacted the Tax Policy, to cost the United States approximately $1 trillion over a ten year span.12 President Bush and his administration did not consider the true cost of his tax cut policies, but instead pushed the measures through Congress as quickly as possible to capture a victory for the new President. Therefore, Congress enacted the Tax Policy, and subsequent tax cuts, without considering an accurate cost-benefit analysis.13 Although most members of Congress realized the Tax Policy would drain the budget surplus that was left by the Clinton tax policy, it would have been helpful for a true cost-benefit analysis in order to determine whether tax cuts were worth the budget deficit they would create. The perception at the time, a view that President Bush had worked hard to create, was that the budget surplus was large enough to sustain the proposed Tax Policy.14
The Economic Growth and Tax Relief Reconciliation Act of 2001 was enacted on June 7, 2001 during the first year of the first term of the George W. Bush presidency. The Tax Policy of 2001 drastically lowered taxes on income (mostly in the top tax brackets), altered taxes paid on gifts, created eventual exemptions for estate taxes upon death, altered tax guidelines for retirement plans and created tax credits for citizens that had filed their taxes on time in 2000. 15 The first tax cut of the Bush administration eliminated $320 billion in taxes on the American people that would be phased in over time, scheduled to begin in 2002 and end in 2010. A brand new tax bracket of 10 percent was created to ease some of the tax burden on low income individuals and families, the 15 percent bracket largely remained the same despite expanded income qualifications, the previous 28 percent bracket was gradually reduced to 25 percent, the 31 percent bracket gradually replaced the previous 28 percent bracket, the 36 percent bracket was reduced to 33 percent, and the 39.6 percent bracket was gradually reduced to 35 percent, with all of the changes set to reach their maximum in 2006.16 The gradual reductions of the tax brackets, which were set to reach maturity in 2006, were accelerated by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (hereafter “Tax Cuts of 2003”), an additional tax cut that was enacted into law on May 23, 2003.17
As shown in the previous charts, it appears as if the poor, or lowest brackets on the list, received the biggest tax cuts of all the tax brackets. In reality, the wealthiest individuals in the top bracket received the largest tax cuts; lower-income citizens did receive tax cuts, but the reduction in income tax did not markedly expand the incomes of individuals, married couples or families in the lower tax brackets.18 Although the Tax Policy had been publicized by President Bush as a way to repay the citizens of the United States, many within the Bush administration understood the tax policies to reward the wealthy business owners of America.19 Many criticisms have been geared towards the obvious inequalities within the tax policies of the Bush administration and the fact that wealthy Americans received more substantial tax cuts than the lower and middle classes.20
Another aspect of the Tax Policy was the tax credits issued to citizens of the United States that had filed their taxes on time in 2000 or those that had filed for an extension and had sent their returns to the Internal Revenue Service in a timely manner. Single filers without dependents were eligible for a $300 tax rebate, single parents were eligible for a $500 rebate and married couples were eligible for a $600 rebate. Also, the Tax Policy introduced an expansion of the child credit to $1000 which was previous capped at $500 for qualifying Americans; this credit was phased in over a period of 10 years. The Tax Policy also doubled the amount of standard deduction for married couples (which had been called the “Marriage Penalty Relief”), increased the Individual Retirement Account (IRA), 401(k), and other contribution limits, allowed for a “catch up” provision for individuals 50 or older on pensions, increased the Alternative Minimum Tax (AMT) exemption amount for four years, gradually reduced and eventually eliminated the “death tax” in 2010, created incentives to invest in education savings accounts, and created an adoption tax credit. 21 The elimination of the “death tax” benefitted a few very wealthy families in the United States and made it easier for them to inherit large fortunes from generation to generation without being taxed at a reasonable rate. The “death tax” had been advertised as a tax against all Americans which would cause modest families to lose their family-owned businesses. In reality, only the top one percent of families in the United States were subject to the “death tax,” but President Bush skillfully found a way to remove this tax in order to help the wealthy Republicans that had gotten him into office.
The Tax Policy of 2001 was a huge success for the Bush presidential legacy since he was able to accomplish one of his campaign goals, appeal to the general public for drastically lowered taxes, and facilitate the upper class, mainly the wealthy business owners whom Bush and his Vice President Dick Cheney relied on for campaign finance. This policy initiative was very close to the heart of the new President since it was a major campaign promise he had used while running for the presidency against Al Gore. Since President Bush had promised the American public he would lower taxes during his campaign, it was necessary for Bush to achieve his tax cuts in order to prove his relevance, due to the messy election against Gore, and influence as the president.22 If Bush had been unable to enact his Tax Policy it would have been a huge embarrassment for the President, especially since he spent so much time and energy campaigning around the United States after his inauguration to muster support for the measure. This tactic of campaigning may have backfired on the President since he was forced to compromise because of all the attention he had brought upon himself and his Tax Policy; if the measure had failed, the American mass media would have reported the failure of the Tax Policy and the public would have viewed the adminstration as weak and incapable.Continued on Next Page »