Ten years ago today, the The Economic Growth and Tax Relief Reconciliation Act of 2001 passed Congress. Yes, it was a bill considered under reconciliation! While the Bush Administration was frustrated in enacting some of its domestic policy, they used whatever means necessary – including using reconciliation, a process designed expressly to make it easier to reduce the deficit, to blow it up by trillions – to get the only policy that mattered, tax cuts for the rich, into law.
Despite the effort now to separate some of the tax cuts for the less wealthy from others, there’s no question that the Bush tax cuts disproportionately benefited the rich. According to EPI, 55% of the tax breaks went to the top 10% of earners, and the top 0.1% of earners, those making more than $3 million a year, got an average tax cut of $520,000. The poor saw almost no reduction in taxes. As a result, what meager income gains there were during the Bush non-recession years went almost entirely to the rich, who had less of a tax burden. As a result, we currently have the lowest tax burden of any time in the past 60 years. And last year, the Bush tax cuts were extended for another two years, raising hopes on the right that they will be permanent in all but name.
And let’s talk about the economic benefits of these 10 years of tax cuts:
Not only were the Bush-era tax cuts a poor stimulus coming out of the 2001 recession, they did not lead to faster economic growth during the economic expansion leading up to the Great Recession.
Between the end of the 2001 recession (2001Q4) and the peak of that expansion (2007Q4), the U.S. economy experienced the worst economic expansion of the post-war era.
Growth in investment, GDP, and employment all posted their worst performance of any post-war expansion.
The tax cuts were supposed to encourage business investment, but nonresidential fixed investment increased a meager 2.1% annually—a third of the average increase and less than half that of the next poorest post-war increase in business investment on record.
Yes, the tax cuts didn’t create every single problem that led to this miserable record. But the entire economic program of the Bush Administration was the tax cuts. They didn’t have another set of plans to encourage economic growth. In 2003, they enacted more tax cuts. In 2008, when the recovery waned, they created a stimulus out of more tax cuts. That was the entire plan, and under it, we had the worst postwar expansion in history, followed by a giant economic crisis out from under which we are still pulling ourselves. And, the tax cuts added $2.6 trillion to the debt. If they were to be extended for the next ten years, it would cost even more, around $4.6 trillion. Keep in mind that most of the big-time deficit plans add up to $4 trillion in deficit reduction. Letting the Bush tax cuts expire would do that all by itself.
Here are some of the purchases made with the Bush tax cuts: “I got a bigger boat than I used to have.” “I probably traveled a little bit more than I otherwise would have.” “I just started creating jobs myself. I built a dance floor in my house — which I really didn’t need.” “I have not done anything with that money.”
At a time of maximum worry in Washington about the deficit, this should be a red-letter day, an anniversary when everyone recognizes the error of giving large tax cuts to millionaires as an economic program. My guess is it won’t rate a mention.
More from Stephanie Mencimer.