Bruce Bartlett: Bush Tax Cuts a Flop
Bruce Bartlett writes:
Republicans are heavily invested in permanently extending the tax cuts enacted during the George W. Bush administration, all of which expire at the end of this year exactly as the legislation was written in the first place. To hear Republicans, one would think that the Bush tax cuts were the most powerful stimulus to growth ever enacted and only a madman would even think of allowing any of them to expire.
The truth is that there is virtually no evidence in support of the Bush tax cuts as an economic elixir. To the extent that they had any positive effect on growth, it was very, very modest. Their main effect was simply to reduce the government’s revenue, thereby increasing the budget deficit, which all Republicans claim to abhor.
It’s worth remembering where the Bush tax cuts came from in the first place. In 1999, in the midst of one of the biggest economic booms in American history, then Texas Gov. Bush convened a group of Republican economists to draft a tax plan for him. Contrary to Ronald Reagan’s 1981 tax cut, which was a simple across-the-board marginal tax rate reduction, the Bush plan was a hodge-podge of tax gimmicks designed more to win the support of various voting blocs than stimulate growth.
Bush proposed a doubling of the child credit to $1,000; higher limits on education savings accounts; a new deduction for two-earner couples; allowing a deduction for charitable contributions by those that don’t file itemized returns; a $400 deduction for teachers who buy unreimbursed school supplies; Individual Development Accounts to allow people to save tax-free for retraining; a refundable tax credit for health insurance; and a tax credit for financial institutions that matched savings by those with low incomes.
The only supply-side element was a modest reduction in the top statutory income tax rate from 39.6 percent to 33 percent — higher than it had been during Bush’s father’s administration — that would be phased-in over a number of years.
Bush’s economic advisers tried to talk him out of the rebate, but ran into a brick wall.
No Reaganites praised the Bush plan; all favored something much bolder, such as the flat-tax proposal that was being promoted by publisher Steve Forbes, who was challenging Bush for the Republican nomination. Rather than defend his proposal as one that would increase growth, Bush argued that its main purpose was simply to deplete the budget surplus, which had grown under President Bill Clinton to $126 billion in 1999. Surpluses were dangerous, Bush and his advisers repeatedly warned, because Congress might spend them.
Click here to read more.
