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The Bush tax cuts refers to two laws created and passed during the presidency of George W. Bush that generally lowered tax rates and revised the code specifying taxation in the United States. These were the:

• Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
• Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA)

While each act has its own legislative history and effect on the tax code, the JGTRRA amplified and accelerated aspects of the EGTRRA. Moreover, since 2003 the two acts have often been spoken of together, especially in terms of analyzing their effect on the U.S. economy and population and in discussing their political ramifications. This is especially true once discussion of the possible extension of the tax cuts for 2011 and onward began taking place.

Implications for the Alternative Minimum Tax

The 2001 act and the 2003 act significantly lowered the marginal tax rates for nearly all U.S. taxpayers. One byproduct of this tax rate reduction was that it brought to prominence a previously lesser known provision of the U.S. Internal Revenue Code, the Alternative Minimum Tax (AMT). The AMT was originally designed as a way of making sure that wealthy taxpayers could not take advantage of "too many" tax incentives and reduce their tax obligation by too much. It is an alternate system of calculating a taxpayer's tax liability that removes many so called "tax preference items". However the applicable AMT rates were not adjusted in step with the lowered rates of the 2001 and 2003 acts, causing many more people to face higher taxes because of the AMT than had originally been planned. This reduced some of the benefit of the two acts for many upper-middle income earners, particularly those with large deductions for state and local income taxes, dependents, and property taxes.

Debate over effect of cuts

There was and is considerable controversy over who benefited from the tax cuts and whether or not they have been effective in spurring sufficient growth. Supporters of the proposal and proponents of lower taxes claimed that the tax cuts increased the pace of economic recovery and job creation. Further, proponents of the cuts asserted that lowering taxes on all citizens, including the rich, would benefit all and would actually pry more money from the wealthiest Americans as they would avoid tax shelters for their money. The Wall Street Journal editorial page states that taxes paid by millionaire households more than doubled from $136 billion in 2003 to $274 billion in 2006 because of the JGTRRA.

Critics state that the tax cuts have failed to spur growth, while increasing the budget deficit, shifting the tax burden from the rich to the middle and working classes and further increasing already high levels of inequality. Economists Peter Orszag and William Gale described the Bush tax cuts as reverse government redistribution of wealth, " the burden of taxation away from upper-income, capital-owning households and toward the wage-earning households of the lower and middle classes." Supporters countered that the tax brackets were still more progressive than the brackets from 1986 until 1992, with higher marginal rates on the upper class, and lower marginal rates on the middle class than established by either the Tax Reform Act of 1986 or the Omnibus Budget Reconciliation Act of 1990, so any apocalyptic rhetoric was exaggerated.

The Congressional Budget Office estimated that the tax cuts would increase budget deficits by $60 billion in 2003 and by $340 billion by 2008. Supporters of President Bush argue that this analysis ignores the potential growth that the act could encourage. Supporters also argue that this would be further supported by analyzing the effect of the economic shock of the terrorist events of September 11, 2001. The terrorist fears, resulting reduction in travel and consumer expenditure, and increased security expenditures, they say, are a prime example of an economic cost shock, and they suggest that the recession of 2001 and 2002 would have been drastically worse had no attempts at promoting economic growth by reducing taxes been made, though there is no empirical evidence to support or disprove this claim (nor could there be). The lag between policy making and economic impact suggests the possibility to be remote, like any fiscal stimulus plan, most of which are fully enacted only when the recession is over.

Debate over possible extension of cuts

In late July 2010, analysts at Deutsche Bank said letting the Bush tax cuts for those earning more than $250,000 expire would greatly slow economic recovery. However, Treasury Secretary Timothy Geithner said allowing the expiration would not cause such a slowing. The Obama administration proposed keeping tax cuts for people making less than $250,000 per year. Economist Mark Zandi found that making the Bush tax cuts permanent would be the second least stimulative of several policies considered. Making the Bush tax cuts permanent would have a multiplier effect of 0.29 (compared to the highest multiplier of 1.73 for food stamps).

See also

• Taxation in the United States
• Tax cut

References

1. "Their Fair Share". Wall Street Journal. July 21, 2008. http://online.wsj.com/article/SB121659695380368965.html
2. "Price, L. (October 25, 2005). The Boom That Wasn't: The economy has little to show for $860 billion in tax cuts" (PDF). Retrieved 2007-10-13.
3. Andrews, Edmund L. (2007-01-08). "Tax Cuts Offer Most for Very Rich, Study Says". The New York Times. Retrieved 2007-01-14.
4. Justin Fox (2007-12-06). "Tax Cuts Don't Boost Revenues". Time. Retrieved 2007-12-07.
5. "Economists on Net Revenue Impact of Bush Tax Cuts. ". Retrieved 2007-11-10.
6. "Price, L. & Ratner, D. (October 26, 2005). Economy pays price for Bush's tax cuts" (PDF). Retrieved 2007-11-10.
7. "Gale, G. W. & Orzsag, P. R. (May 4, 2005). The Great Tax Shift". Retrieved 2007-11-11.
8. http://www.cnbc.com/id/38467149
9. Zandi, Mark. "A Second Quick Boost From Government Could Spark Recovery." Edited excerpts from congressional testimony July 24, 2008.

External links

• EGTRRA's impact on tax revenue and summary of changes, via irs.gov
• Special Report: Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), Professor John Wachowicz at the University of Tennessee
• Effective Federal Tax Rates Under Current Law, 2001 to 2014, by the Congressional Budget Office

• United States federal taxation legislation