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Debunking The Bush Tax Cuts

December 12th, 2010
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12.12.2010
08.08.2011 repaired broken link


Debunking The Bush Tax Cuts

original article written by Net Advisor

There still seems to be some apparent confusion about the Economic Growth and Tax Relief Reconciliation Act of 2001 also called, “The Bush Tax Cuts” and what it really means.

Brief Background:
The Bush Tax Cuts was passed in 2001 during the last recession which depending on whose number one rely on began in 2000. The idea was to help keep more money in all consumers hands, not the governments hands, especially in a recession.

The idea worked, and got us out of the recession supposedly in November 2001, however the stock market at the time did not rebound until on or about October 2002. The stock market is often referred to as a “leading economic indicator” (Source: About.com Economics). Thus if the market trends higher, the economy is generally supposed to follow. If the market trends lower, the economy likewise tends to follow.

Our last discussion of the so called “Bush Tax Cuts” can be found in an article published on November 1, 2009.

Yet despite plenty of economic history to refer to, there has been much inaccurate political speech that if Congress and the president approved the extension of the Bush Tax Cuts, that the following would occur:

#1. The deficit would go up by $900 Billion. The exact quote referring to the extension of the 2002 Bush tax cuts:

“Stahl: Was the tax deal, in your opinion, worth the $900 billion added to the deficit.” (Source: 60 Minuets, with Correspondent Leslie Stahl; Air date: 12-12-2010, Video).

President Obama used the number $700 Billion on 12-06-2010 [Source: WhiteHouse.gov (PDF 2 pps)].

#2. That the ‘wealthiest of Americans will see their taxes go down.’

Here are the Facts:
1. Continuing the Bush tax cuts will not increase the deficit. Only Congress who spends more money than they receive increases the deficit.

Some people in Congress including the current Administration seems to think that future revenue is current revenue. Thus if in the future raising taxes on American’s would bring in $900 Billion, but government decides not to increase taxes, then somehow we have a $900 Billion deficit?

In More Simple Terms.
1. Pretend you spend exactly $50 a month on your utility bill.
2. The utility company thought about raising your rates.
3. The utility company decides not to raise your rates.

Question: How much is your utility bill?
Answer: $50

Did you get a decrease in your utility rates?
Answer: No.

Did the utility company lose any money for keeping rates the same?
Answer: No.

Did the utility company suddenly create a deficit for keeping rates the same?
Answer: No.

But under some government ideology, because the utility company didn’t rates your rates, they utility company suddenly has a deficit?

Perhaps CBS’s Leslie Stahl was just bringing up the argument that ending the Bush Tax Cuts would allegedly add $900 Billion to the deficit. But, again, the fact is the government is not losing $900 Billion. The government never had the money in the first place. How do you lose something that you don’t have?

Source: Tax Foundation

Will Extension of the Bush Tax Cuts Make Tax Rates Go Down For the Wealthy (or anyone?)
The last main argument in favor to NOT extend the Bush Tax Cuts, is that the ‘wealthiest of Americans will see their taxes go down.’

“I’m not about to add $700 billion to our deficit by allowing a permanent extension of the tax cuts for the wealthiest Americans.  And I won’t allow any extension of these tax cuts for the wealthy, even a temporary one…”

— Source: President Barack Obama, [WhiteHouse.gov (PDF 2 pps)]

Once again, we just went over this above with the utility company. This is another inaccurate political statement. An extension of the Bush Tax Cuts just keeps tax rates the SAME. They do not go lower for “the wealthiest Americans” or for anyone else. The federal tax rates are the same now and through 2012, just as they were in 2001.

Here are the federal tax brackets under the “Bush Tax Cuts (June 7, 2001):”

  • “a new 10% bracket was created for single filers with taxable income up to $6,000, joint filers up to $12,000, and heads of households up to $10,000.
  • the 15% bracket’s lower threshold was indexed to the new 10% bracket
  • the 28% bracket would be lowered to 25% by 2006.
  • the 31% bracket would be lowered to 28% by 2006
  • the 36% bracket would be lowered to 33% by 2006
  • the 38.6% bracket would be lowered to 35% by 2006″

— Sources: Wikipedia and U.S. GPO Public Law 107-16

Bottom line.
No one is getting a tax cut. The extension of Bush Tax Cuts keeps the tax rates the SAME for EVERYONE as they were from 2001 to 2012. These tax rates are subject to possible change in 2 years. The extension expires at that time and this issue will come up once again for debate.

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