Bush Era Tax Cuts Explained

The tax cuts that occurred during George W. Bush’s terms in the White House were intended to stimulate economic growth through what is known as ‘supply side economics’. According to James, D. Gwartney of the Library of Economics and Liberty, increases in taxes reduce the economic output or supply of economic incentive. The result, according to groups such as the Heritage Foundation, is smaller tax receipts than had taxes been reduced.

Bush era tax cuts subscribed to the belief a free market with lower tax had within itself the capacity to generate national wealth. Following the Economic Growth and Tax Reconciliation Act of 2001 and the Jobs Growth and Tax Relief Reconciliation Act of 2003, federal tax receipts did not rise substantially until 2005 when tax receipts increased from $1.388 trillion to $2.153 trillion according to the Urban Institute’s and Brookings Institution Tax Policy Center. Since 1944, federal tax receipts have ranged between 14-21 percent of GDP, the same range held during the Bush era also according to the tax center.

According to a Cato Institute report by Chris Edwards, several types of tax cuts were instituted during the terms of President George Bush. Edwards claims the 2001 tax law lowered individual income tax across all income levels, in addition to gradually reducing estate taxes and increasing the child tax credit. Moreover, Edwards refers to the Stimulus Tax Cut bill of 2002 as a measure to increase business income. The 2003 tax legislation aimed successfully reduced dividend taxes by 20 percent and the top income level of capital gains tax by 5 percent.

Although several Bush era tax cuts were sought to be permanent, expiration dates on the provisions were set to occur between 2008-2010. However, when President Barak Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the Bush era tax cuts were given new life and extended. For example, the Accounting firm Cherry, Baekaert and Holland report that the child tax credit, long-term capital gains tax, dividend tax rates and  income tax had all been extended by two years.

Tax policy is a hotly debated issue, and the Bush era tax cuts are no exception. Analysts from both sides of the political spectrum have substantiated and arrived at  conclusions supporting different levels of taxation. To illustrate, the Center for Budget and Policy Priorities determined the U.S. deficit as a percent of Gross Domestic Product (GDP) would have been 2.6 percent smaller had the Bush tax cuts not been implemented.  Yet, to the contrary, in 2007 the Heritage Foundation, claimed the Bush tax cuts did not substantially reduce tax revenues, led to a larger tax burden on the rich and an increased economic growth by more than 100 percent or double that of 2003.