Bush Tax Cuts

[Potus]

I realize that these are universally unpopular here because they're FOR THE RICH, but there is a lot of mainstream perception that they led to a larger deficit.

The premise behind tax cuts as they relate to the budget surplus/deficit is that they lead to higher GDP growth, leading to the federal government taking a slightly smaller portion of a larger pie.

GDP growth in 2002, when the tax cuts were first put into effect, increased to 3.76% from 2.19%. Tax cuts function within the framework of human behavior. The growth increases became larger as behavior adjusted to the new tax environment. Same goes goes for the 2003 tax cuts.

Federal tax revenue 2000 was $2.54 trillion in 2009 dollars. In 2006, federal tax revenue exceeded that number by $21 billion in 2009 dollars. This provides a 3-4 year window to allow the tax cuts to work.

It seems like the revenue impacts of the Bush tax cuts mirror what is "supposed" to happen in a Tax Foundation model where revenue drops, behavior adjusts, revenue recovers.

[136or142]

Tax revenues tend to grow over time, no matter what happens.  To get a better picture, you'd need to compare these tax cuts with tax revenue/GDP growth during times when taxes didn't change, and tax revenue/GDP growth when taxes were increased.  For the latter, I'd consider what happened to tax revenue/GDP growth after the Bill Clinton tax increases.

[OSR stands with Israel]

Tax revenues tend to grow over time, no matter what happens.  To get a better picture, you'd need to compare these tax cuts with tax revenue/GDP growth during times when taxes didn't change, and tax revenue/GDP growth when taxes were increased.  For the latter, I'd consider what happened to tax revenue/GDP growth after the Bill Clinton tax increases.

Then compare the tax revenue/GDP of the Clinton years to the Reagan years

[P123]

Bush Tax cuts were good for the economy, and did not increase the debt. The thing that drove it up, was Bushes spending on Iraq (2 Trillion+), No Child Leftbehind, and Medicare bill.

[RFayette]

A strong economic recovery, which we saw in FY 2005 and 2014/5 will boost tax coffers substantially, regardless of whether taxes are raised or lowered.  I do agree that the Bush tax cuts were maligned too much though - they ended up increasing the share of total taxes paid by the top 1% and the bulk of lost revenue was due to the dot-com bust and later the Great Recession, which had a bigger impact than tax policy by my estimation.

[136or142]

Tax revenues tend to grow over time, no matter what happens.  To get a better picture, you'd need to compare these tax cuts with tax revenue/GDP growth during times when taxes didn't change, and tax revenue/GDP growth when taxes were increased.  For the latter, I'd consider what happened to tax revenue/GDP growth after the Bill Clinton tax increases.

Then compare the tax revenue/GDP of the Clinton years to the Reagan years

Good idea. Do that as well.  I was making a serious suggestion, not trying to play political games.  I've always seen myself as much more of an academic than as a partisan.  It's just that tax revenue and GDP growth during a tax cut already had been given an example with the W. tax cuts.  If you want to suggest additional tax cut years to look at, that's fine.

[Taco Truck 🚚]

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http://www.businessinsider.com/bush-era-tax-cuts-didnt-fix-economy-2012-12

[Clarko95 📚💰📈]

Federal tax revenue 2000 was $2.54 trillion in 2009 dollars. In 2006, federal tax revenue exceeded that number by $21 billion in 2009 dollars. This provides a 3-4 year window to allow the tax cuts to work.

$21 billion is not that impressive of an increase, considering the enormous housing bubble that was peaking that year after driving housing sales and property values, construction employment, and allowing people to use their houses as credit cards for the previous 5 years.

And the housing bubble was driven by low interest rates from 2001 - 2004 (they dropped from 6% in 2000 to 1% by the end of 2001, then rose from 2004 to 5.25% in 2006), poor lending practices by banks, flawed investment logic ("Housing prices will never drop!" and "You can live in your investment!"), and lax regulation.

And i'm also not sure where you got your GDP growth stats from. There was a recession in 2001, and most numbers show a small 1% annual increase, then 1.8% in 2002 and 2.8% in 2003. These numbers were despite rising unemployment that didn't peak until 2003, before coasting down to 5% by late-2005.

If the Bush tax cuts were actually meant to stimulate growth in the early-2000s, they did a pretty terrible job of it, and it's hard to claim that the economy recovered because of the tax cuts when the economy is being driven by a credit bubble and the soaring rate of consumer debt-to-income percentage that later burst.

There are a lot of macroeconomic trends that were special to the 2000s decade that make it hard to control for the Bush tax cuts. We saw our trade deficit explode from around $250 billion in 2000 to over $800 billion in 2007 and the loss of 3.8 million manufacturing jobs from 2001 - 2007 (plus an additional 2.3 million from 2008 - 2010), all of which severely dragged on growth despite a housing market on fire and the polarized generation of jobs in high-end or low-paying service occupations.

If anything, the Bush tax cuts just masked some of the decline in incomes during the 2000s, and the effects on the budget and the economy were ripped away once the Great Recession hit.

IMHO, they don't seem to have been worth it at all.

[King]

We had a near 6 trillion dollar surplus and were expected to pay off the national debt by 2010. Imagine that--even if the housing bubble still bursts and the economy collapses--that President Obama has $0 national debt to work with to rebuild the economy. Instead, we have a near $20 trillion catastrophe.

A 1.5% increase in GDP was not worth the steep fiscal insolvency we find ourselves in today.

[Amenhotep Bakari-Sellers]

It was also made with Promise that younger workers would get a 401K in their retirement savings but got nothing in return. So, the tax cuts which combined with Fall of Stock Market made younger voters cynical.

[Rick Grimes]

taxes should be more fair but not higher.

[All Along The Watchtower]

We had a near 6 trillion dollar surplus and were expected to pay off the national debt by 2010. Imagine that--even if the housing bubble still bursts and the economy collapses--that President Obama has $0 national debt to work with to rebuild the economy. Instead, we have a near $20 trillion catastrophe.

A 1.5% increase in GDP was not worth the steep fiscal insolvency we find ourselves in today.

It was also not worth the massive acceleration of income and wealth inequality - not to mention, the reduction of labor's share of national income in favor of non-labor income that went almost exclusively to the top 1 percent.

[RINO Tom]

We had a near 6 trillion dollar surplus and were expected to pay off the national debt by 2010. Imagine that--even if the housing bubble still bursts and the economy collapses--that President Obama has $0 national debt to work with to rebuild the economy. Instead, we have a near $20 trillion catastrophe.

A 1.5% increase in GDP was not worth the steep fiscal insolvency we find ourselves in today.

That's hardly because of his tax cuts, even if he implemented them irresponsibly, given his spending plans.

[RaphaelDLG]

Federal tax revenue 2000 was $2.54 trillion in 2009 dollars. In 2006, federal tax revenue exceeded that number by $21 billion in 2009 dollars. This provides a 3-4 year window to allow the tax cuts to work.

$21 billion is not that impressive of an increase, considering the enormous housing bubble that was peaking that year after driving housing sales and property values, construction employment, and allowing people to use their houses as credit cards for the previous 5 years.

And the housing bubble was driven by low interest rates from 2001 - 2004 (they dropped from 6% in 2000 to 1% by the end of 2001, then rose from 2004 to 5.25% in 2006), poor lending practices by banks, flawed investment logic ("Housing prices will never drop!" and "You can live in your investment!"), and lax regulation.

And i'm also not sure where you got your GDP growth stats from. There was a recession in 2001, and most numbers show a small 1% annual increase, then 1.8% in 2002 and 2.8% in 2003. These numbers were despite rising unemployment that didn't peak until 2003, before coasting down to 5% by late-2005.

If the Bush tax cuts were actually meant to stimulate growth in the early-2000s, they did a pretty terrible job of it, and it's hard to claim that the economy recovered because of the tax cuts when the economy is being driven by a credit bubble and the soaring rate of consumer debt-to-income percentage that later burst.

There are a lot of macroeconomic trends that were special to the 2000s decade that make it hard to control for the Bush tax cuts. We saw our trade deficit explode from around $250 billion in 2000 to over $800 billion in 2007 and the loss of 3.8 million manufacturing jobs from 2001 - 2007 (plus an additional 2.3 million from 2008 - 2010), all of which severely dragged on growth despite a housing market on fire and the polarized generation of jobs in high-end or low-paying service occupations.

If anything, the Bush tax cuts just masked some of the decline in incomes during the 2000s, and the effects on the budget and the economy were ripped away once the Great Recession hit.

IMHO, they don't seem to have been worth it at all.

GREAT post.