Bush Tax Cuts: A Decade Of Failure
Today marks the 10th anniversary of the first of the two massive tax cuts signed by President George W. Bush and is yet another great opportunity to illustrate that both tax packages failed to deliver on their promised results. Bush told the country that the tax cuts would result in economic growth and sustained prosperity, but the economy got neither. In fact, from 2001 to 2007, the economy experienced the weakest job growth since the end of World War II. While the nation's millionaires and billionaires were enriched, average household income fell for the first time on record. Worse, since the Bush tax cuts did not pay for themselves — as many conservatives claimed they would — the two tax packages added trillions to the nation's deficit. During the current debate on deficits and debt, it's important to remember just how much the Bush tax cuts accelerated the fiscal troubles we're now facing.
Bush Tax Cuts Failed To Deliver
During Bush Years, Household Income Declined For First Time On Record. According to a report by the Center for American Progress: "The Bush economic cycle saw the first decline in median household incomes of any cycle since 1967, when the Census Bureau began tracking household data."
[Center for American Progress, February 2009]
Bush Tax Cuts Inefficient, Didn't Stimulate The Economy. According to the Tax Policy Center's William Gale: "Economic research over the past decade can explain why extending the original Bush tax cuts is not good stimulus policy. After the tax rebates in 2001, 2003, and 2008, households appear to have spent in relatively short order somewhere between 25 and 67 cents more for each dollar of tax cut. This makes tax cuts in general - even the parts of those tax bills that were intended to stimulate - a relatively weak way to help the economy compared to increases in government purchases, for which each dollar of increased deficit turns into an additional dollar of spending." [Tax Policy Center, 9/30/10]
Bush Tax Cuts Followed By Weakest Jobs And Income Growth In Post-War Period. According to a report by the Center for American Progress, the Bush tax cuts failed to deliver jobs and income growth: "This period registered the weakest jobs and income growth in the post-war period. Overall monthly job growth was the worst of any cycle since at least February 1945, and household income growth was negative for the first cycle since tracking began in 1967. Women reversed employment gains of previous cycles. And for African Americans, the worst job growth on record was matched by an unprecedented increase in poverty." [Center for American Progress, February 2009]
Bush Tax Cuts Followed By "The Slowest Average Annual Growth Since World War II." As the New York Times' David Leonhardt explains:
Those tax cuts passed in 2001 amid big promises about what they would do for the economy. What followed? The decade with the slowest average annual growth since World War II. Amazingly, that statement is true even if you forget about the Great Recession and simply look at 2001-7.
The competition for slowest growth is not even close, either. Growth from 2001 to 2007 averaged 2.39 percent a year (and growth from 2001 through the third quarter of 2010 averaged 1.66 percent). The decade with the second-worst showing for growth was 1971 to 1980 - the dreaded 1970s - but it still had 3.21 percent average growth.
The picture does not change if you instead look at five-year periods. Here's a chart ranking five-year periods over the past 50 years, in descending order of average annual growth:
Is there good evidence the tax cuts persuaded more people to join the work force (because they would be able to keep more of their income)? Not really. The labor-force participation rate fell in the years after 2001 and has never again approached its record in the year 2000.
Is there evidence that the tax cuts led to a lot of entrepreneurship and innovation? Again, no. The rate at which start-up businesses created jobs fell during the past decade.
[New York Times, 11/18/10]
Heritage Foundation Budget Guru: Bush Tax Cuts Played Some Role In Lower Revenues. As the Heritage Foundation's Brian Riedl admits: "the 2001/2003 tax cuts played some role in keeping revenues below their historical average for most of the 2000s, but the country was also recovering from a recession at that time, too." [Heritage Foundation, 7/29/10]
Bush Cuts Followed By Slowest Jobs Growth Since The End Of World War II. According to a report by the Center for American Progress, "from March 2001 to December 2007 the economy added 1.8 million jobs for workers aged 25 to 54, only 22,000 per month. That translates to an average annualized growth rate of only 0.3 percent per month-the slowest of any cycle on record since the end of World War II and one-fifth the growth rate during the 1990s."
[Center for American Progress, February 2009]
Bush Tax Cuts Are Costly, Add To Deficit And Debt
The Bush Tax Cuts Are The Primary Driver Of Federal Budget Deficits Over The Next Decade. Below is a chart from CBPP showing the deficit impacts of war spending, financial recovery spending, the recession itself, and the Bush tax cuts:
Continuing Bush Tax Cuts Doom The Long-Term Fiscal Picture. As the Tax Policy Center's William Gale has explained: "The deficits we face over the next decade reflect a fundamental imbalance between spending and revenue, one that goes beyond entitlements. Based on projections by the CBO, Alan Auerbach of the University of California at Berkeley and myself, among others, even if the economy returns to full employment by 2014 and stays there for the rest of the decade, the continuation of current fiscal policies, including the Bush tax cuts, would lead to a national debt in the range of 90 percent of GDP by 2020. That's already the highest rate since just after World War II -- and Medicare, Medicaid and Social Security aren't expected to hit their steepest spending increases until after 2020." [Washington Post, 8/1/10]
Extending Bush Tax Cuts "Would Increase The Debt By An Amount Roughly Equal To The Size Of The Economy." As the Center for Budget and Policy Priorities points out, tax cuts do not pay for themselves. In fact, if an unpaid-for extension is enacted, by 2050, the national debt "would increase the debt by an amount roughly equal to the size of the economy."
Present "Huge Deficits" Partly Due To Bush Tax Cuts. As the Center for Budget and Policy Priorities explains: "If not for the Bush tax cuts, the deficit-financed wars in Iraq and Afghanistan, and the effects of the worst recession since the Great Depression (including the cost of policymakers' actions to combat it), we would not be facing these huge deficits in the near term." [CBPP.org, 5/10/11]
The Center for Budget and Policy Priorities prepared the following graphic showing that the Bush tax cuts and wars in Iraq and Afghanistan will account for nearly half of public debt by 2019: