The "Temporary" Bush Tax Cuts that Won't Go Away...
In 2001 and 2003, the Bush Administration pushed through legislation that cut personal income tax rates, cut tax rates on capital gains and dividends, and cut the federal estate tax on multi-millionaires. The reductions were phased in over several years, then set to revert in 2011 to their pre-Bush levels (a gimmick designed to mask the true cost of the cuts).
But instead of expiring in 2011 as planned, these cuts were extended for another two years as part of the tax deal struck between President Obama and GOP leaders. The Obama-GOP tax deal also included other measures, including weakening of the estate tax to its lowest rate since 1932 and a temporary two percent reduction of the Social Security tax rate. The income tax rates, capital gains and dividend rates, and estate tax are all set to revert to their pre-Bush levels at the end of 2012.
The Bush tax cuts were bad policy, and any extension of these tax breaks for millionaires and billionaires is bad for this country. Here's why:
1. At a time of mounting federal deficits, we cannot afford such lavish cuts.
Including interest, the Bush Tax Cuts cost us $2.5 trillion through 2010. The Obama-GOP tax deal, most of which consists of the extension of the Bush Tax Cuts, will cost $855 billion over the two-year extension period. $424 billion of that is in 2011 alone, nearly 40% of which will go to the top 5% of income earners.
2. The Bush tax cuts were rooted in the failed trickle down policies of the past.
Over half of all the Bush tax cuts went to the top 5% of households, while the bottom 60% of households shared less than 13% of the Bush tax cuts. Instead of the promised trickle-down, we got stagnant wages for middle class Americans while the wealthy became fabulously wealthy. We now have the greatest economic disparity in wealth since just before the Great Depression.
3. Public structures are the foundation upon which prosperity is built.
Many wealthy people understand that schools, courts, roads, bridges and transportation systems all play a role in their own financial success. Every successful businessperson in this country is building his or her prosperity on the foundation of public structures our tax dollars make possible. It’s only fair that they are asked to give back to support those structures.
4. Public spending, not tax cuts, is the most effective strategy for creating jobs.
With pressure to rein in deficits, Congress is increasingly forced to choose between spending cuts or tax increases. Powerful analysis from Moody’s have shown that public spending on schools, roads, buildings, public safety, and even unemployment benefits, provides more economic stimulus ($1.36 to $1.64 for each dollar spent), than making the Bush tax cuts permanent (29¢ to 37¢ for each dollar given up).
5. Taxes are not charity. They are part of our shared contract as citizens of this country.
Achieving big things requires us to pool resources through our tax system. Individual charitable giving cannot build a road or defend a nation. Even if hundreds of people gave their tax savings back to the US Treasury, it wouldn’t fundamentally change things. We are all citizens of the same nation and we need to share the responsibility of supporting it, especially high-wealth individuals who have been the largest recipients of the wasteful Bush tax cuts for the last 10 years.
With the majority of tax cut provisions expiring at the end of 2012, the question remains - what will federal tax law look like in the future?