In honor of the tenth anniversary of the passage of the first Bush-era tax cuts next week, the Economic Policy Institute has released a report summarizing their impact. Perhaps I should say, “in dishonor of the anniversary”, as it is pretty clear where the authors stand on the cuts: “[T]he Bush tax cuts have exacerbated the trend of widening income inequality, accompanied the worst economic expansion since World War II, and turned budget surpluses into deficits.”
While much of their report summarizes existing research, it’s interesting to consider in light of current debates about the deficit and our long-term budget crisis. According to EPI, the Bush-era tax cuts added $2.6 trillion to the national debt, almost half of the new debt we accumulated over the past decade, and have already cost $400 billion in increased interest payments. This recent graph from the Center on Budget and Policy Priorities shows that the cuts added more to our debt than the Iraq and Afghanistan wars, the recession, or the economic stimulus measures implemented under Obama.
The authors of the EPI report also remind us that the tax cuts were originally designed as a response to the 2001 recession, but they suggest the cuts were/are a less effective form of economic stimulus than the tax credits that were included in the 2009 recovery package:
“Moody’s Analytics Chief Economist Mark Zandi estimates that making the Bush income tax cuts permanent would currently generate only 35 cents in economic activity for every dollar in forgone revenue. Targeted refundable tax credits included in the American Recovery and Reinvestment Act, on the other hand, are estimated to generate much more bang-per-buck, ranging from $1.17 for the Making Work Pay Credit to $1.38 for the Child Tax Credit.”
When you think about it in terms of the national debt, which affects everyone, the inequality in the benefit of the tax cuts is quite startling. During the 2010 tax year, 38% of the Bush-era cuts went to those with incomes in the top 1% (over $645,000) and 55% went to those with incomes in the top 10% (over $170,000). Only 1% of the cuts went to families with incomes in the bottom 20%.
I’ll have another post soon on how much letting the cuts expire at the end of 2012 might help our debt crisis.
Tenth Anniversary of The Bush-era Tax Cuts: A decade later, the Bush tax cuts remain expensive, ineffective, and unfair.
Economic Policy Institute // Andrew Fieldhouse and Ethan Pollack // June 1, 2011