The Bush Tax Cuts: A Lasting Legacy

"And I'm the one who will not raise taxes. My opponent now says he'll raise them as a last resort, or a third resort. But when a politician talks like that, you know that's one resort he'll be checking into. My opponent, my opponent won't rule out raising taxes. But I will. And the Congress will push me to raise taxes and I'll say no. And they'll push, and I'll say no, and they'll push again, and I'll say, to them,‘Read my lips: no new taxes." - George H.W. Bush, August 18, 1988 

INTRODUCTION 

From the earliest moments on the campaign trail George W. Bush publicized his vision for America and central to this was his aggressive tax cuts. Following the boom of the Clinton years and the surpluses that were left in its aftermath, Bush would have the ammunition necessary to convince the nation that tax cuts were necessary. Under the cover of a brief recession and by framing his tax reform in terms of fairness and equality, George W. Bush managed to push through Congress a massive tax cut that would go on to have many long term implications to the nation’s accounts.

What will follow will be a discussion of the fiscal policy of the Bush Administration with special emphasis on his signature tax cuts. This paper will seek to analyze the cuts he signed into law and begin to assess their long-term effects including their impact on the national debt as well as the implications for future administrations. Finally, this work will discuss the role these cuts played in increasing the nation’s debt burden and how this has managed to change many American’s view of government spending, particularly in the confines of the Economic Crisis of 2007-2010.

THE BUSH TAX CUTS: 

Passage

Without question the Bush Tax Cuts were a huge legislative victory for George W. Bush. In the course of two years, George W. Bush managed two large tax reform measures. The first measure which was passed in 2001, The Economic Relief and Tax Reconciliation Act (“EGTRRA”) revised income tax and estate tax rates. The second measure, passed in 2003, the Jobs and Growth Tax Relief and Reconciliation Act, lowered the income tax from dividends and capital gains. The total price tag for the two cuts was initially estimated at $1.35 trillion¹ and has become popularly known as the “Bush Tax Cuts.”

These two measures had long been a talking point on the campaign trail, but many months prior to their respective enactments their fate was less than certain. As always, tax cuts carry some intrinsic popular support. The general public usually takes the opinion that any cut to one’s tax burden is beneficial. Put in other words, the general public usually is not concerned with the long term economic effects of tax cuts and the reality of decreasing tax receipts and the increased potential for deficits.

In addition to this intrinsic popular support, Bush masterfully marketed his tax cuts as matters of fairness and played to overly simply popular slogans in order to push his agenda through. On more than one occasion he quipped, “The surplus is not the government’s money; it’s the people’s money.”^{2 3} While those concerned with the financial stability of the government most likely winced at these words, the public rallied around such statements.

An example of the rhetoric used to push through his tax package was the framing of the estate tax as a “death” tax. Despite the fact the overwhelming majority of American’s will never have to pay an estate tax as the minimum threshold for taxation was nearly $1 million, the Bush Administration allowed the popular misconception that citizens were being taxed for dying to remain.

A number of factors came together to make the Bush tax cuts popular. Following the dot-com boom and economic prosperity presided over by the Clinton Administration America had been sitting on budget surpluses. Bill Clinton’s parting gift to the incoming administration was a budget surplus of $127 billion⁴. This allowed the Bush Administration substantial leeway in its fiscal policy options. A budget surplus could be used to absorb costs and declining tax revenues. Even if a surplus was entirely erased, with it in recent memory, it could be used to hide budget deficits or at least help to decrease the negative connotation typically associated with years upon years of budget deficits.

What also helped Bush was that he was the first president in history to have a Master’s of Business Administration. He had, prior to his time in politics, experience in the management of multiple business ventures and rightly or wrongly many believed this to be just what America needed. His supporters were optimistic that perhaps Bush would be more receptive to small business interests’ and his experience in industry would expand the economy in ways that career politicians and academics simply could not.