Bush tax cuts
The phrase Bush tax cuts refers to changes to the United States tax code passed originally during the presidency of George W. Bush and extended during the presidency of Barack Obama, through:
While each act has its own legislative history and effect on the tax code, the JGTRRA amplified and accelerated aspects of the EGTRRA. 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. Both laws were passed using controversial congressional reconciliation procedures.[1]
The Bush tax cuts had sunset provisions that made them expire at the end of 2010, since otherwise they would fall under the Byrd Rule. Whether to renew the lowered rates, and how, became the subject of extended political debate, which was resolved during the presidency of Barack Obama by a two-year extension that was part of a larger tax and economic package, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. In 2012, during the fiscal cliff, Obama overcame the sunset provisions and made the tax cuts permanent for single people earning less than $400,000 per year and couples making less than $450,000 per year, but did not stop the sunset provisions from applying to higher incomes, under the American Taxpayer Relief Act of 2012.
Before the tax cuts, the highest marginal income tax rate was 39.6 percent. After the cuts, the highest rate was 35 percent. Once the cuts were allowed to sunset for high income levels (single people making $400,000+ per year and couples making $450,000+ per year), the top income tax rate returned to 39.6 percent.
The non-partisan Congressional Budget Office has consistently reported that the Bush tax cuts did not pay for themselves and represented a sizable decline in revenue for the Treasury:
Most of the tax cuts were scheduled to expire December 31, 2010. Debate over what to do regarding the expiration became a regular issue in the 2004 and 2008 U.S. presidential elections, with Republican candidates generally wanting the cut rates made permanent and Democratic candidates generally advocating for a retention of the lower rates for middle-class incomes but a return to Clinton-era rates for high incomes. During his presidential election campaign, then candidate Obama stated that couples with incomes less than $250,000 would not be subjected to tax increases. This income level later became a focal point for debate over what defined the middle class.[34]
In August 2010, the Congressional Budget Office (CBO) estimated that extending the tax cuts for the 2011–2020 time period would add $3.3 trillion to the national debt, comprising $2.65 trillion in foregone tax revenue plus another $0.66 trillion for interest and debt service costs.[35]
The non-partisan Pew Charitable Trusts estimated in May 2010 that extending some or all of the tax cuts would have the following impact under these scenarios:
The non-partisan Congressional Research Service has estimated the 10-year revenue loss from extending the 2001 and 2003 tax cuts beyond 2010 at $2.9 trillion, with an additional $606 billion in debt service costs (interest), for a combined total of $3.5 trillion.[37]
In late July 2010, analysts at Deutsche Bank said letting the Bush tax cuts expire for those earning more than $250,000 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 couples making less than $250,000 per year.[38] Economist Mark Zandi predicted that making the Bush tax cuts permanent would be the second least stimulative of several policies considered. Making the tax cuts permanent would have a multiplier effect of 0.29 (compared to the highest multiplier of 1.73 for food stamps).[39]
American Taxpayer Relief Act of 2012[edit]
On January 1, 2013, the Bush Tax Cuts expired. However, on January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012, which reinstated many of the tax cuts, effective retroactively to January 1. The 2012 Act did not repeal the increase in the highest marginal income tax rate (from 35% to 39.6%) which had been imposed on January 1 as a result of the expiration of the Bush Tax Cuts.