The Bush Tax Cuts and The Economic Recession

President Obama has a fairly big decision looming on the horizon. The Bush tax cuts are set to expire at the end of the year, but President Obama campaigned on making the cuts permanent for middle class families. Compounding matters is the deficit problem the U.S. is facing. Extending the tax cuts would obviously mean less revenue for the government as many feel it is becoming increasingly clear that cutting spending alone will not be sufficient to solve the budget crisis. Throw in the economic recession and the fact that letting the tax cuts expire would derail the economic recovery and you’ve got a real pickle. What’s a President to do?


If the point of the Bush tax cuts were to create jobs post-9/11, it did not do that to any sort of degree that we may call a success.  Over the 8 years that George W. Bush was President, he had a net loss of jobs.  While tax cuts may sound like a good idea, the fact remains that taxes generate revenue that the government can then turn around and put into services, such as helping the unemployed make ends meet until they can get a job, paving roads, building and regulating schools, etc.  Each dollar that we take away from the system by way of tax cuts, tax rebates, tax holidays, or tax increment financing (TIF) is a dollar that we take away from your local fire and police department, school, and highway department, among other things.

This may shock you, but I prefer a more Keynesian approach to creating jobs in a recession like this one.  The American Recovery and Reinvestment Act of 2009, otherwise known as the stimulus package, is an example of this.  The government should spend money to put people back to work by investing in infrastructure.  This way, we can employ people to work these industries while making desperately needed investments in the aforementioned basic services that we have allowed to crumble over the past three decades.

Mississippi is an example of this.  In the Magnolia State, the stimulus funds are being used to directly subsidize jobs in small businesses across the state.  The state pays the salaries initially, and eventually scales back their involvement until the company is able to fully pay the worker on its own.  A third of the stimulus package (much to my chagrin) was tax cuts for middle-class Americans, but programs like the one in Mississippi will go a lot further towards making the sorts of job-creating strides that we need in today’s fragile recovery.


The famous (or infamous, depending on your perspective) Bush Tax Cuts are set to expire at the end of the year. Certainly, the tax breaks for the middle and lower classes should be protected while the others should be allowed to expire to help rectify our budget gap. I would argue those making over $60,000 per year don’t need a continued tax break as they are in the upper-middle and upper classes, in my view. Anyone anywhere can make it on $60,000 if they’re responsible, but I digress. Despite my preference to focus only on the lower and middle classes and small business, President Obama made a pledge not to increase taxes on individuals making under $200,000 and he must stick to that promise…Granted, this is really not a tax increase as the current tax rates are not permanent. The tax breaks are simply set to expire and that expiration date was set by President Bush and the Congress at the time.

Because of economic weakness, any effort to make permanent some of the tax cuts should protect small businesses and focus primarily on the lower and middle classes. Any effort to maintain credibility must also include those between the middle class and the $200,000 threshold President Obama has also promised to protect. But some tax cuts must be allowed to expire to address the budget gap which could exacerbate the economic weakness.

These issues are never easy as it can be painful to attempt to balance economic, fiscal, and political interests. But balance and moderation is necessary for responsible policymaking.


I think you have to extend temporarily all of the tax cuts. While I will be the first to agree that taxes being raised isn’t as doom and gloom as Americans often make it out to be, and particularly it seems necessary given the state of the budget deficit, in the current situation effectively raising taxes is a disaster waiting to happen.

America is in the midst of a very fragile economic recovery. Raising taxes on anybody at this point in time runs the risk of causing what many call a double-dip recession. Furthermore, America is not the only nation going through tough economic times. The recession was a global one as we have seen in Europe. The faltering of the American economy has to be considered a threat to global economies and stability at this point in time. America and the world can ill afford this.

I think the tax cuts need to be extended temporarily, 2 years is a decent starting point. At that point in time, we should revisit the issue. It may well be that allowing the tax cuts to expire for individuals making over $250,000 or $200,000 is an option. Hell, we may even be doing so well that you could raise everyone’s taxes, but good luck with that! In parting, they really need to find a permanent fix to the AMT rather than patching it every single year.


(Craig wrote on this topic yesterday. His portion today is a reprint because it was just that damn good.)

President George W. Bush’s tax cuts are set to expire on December 31st. While Democrats labeled these temporary tax cuts as “only for the rich,” these expiring cuts will drastically impact the middle and lower classes in America. The U.S. Congress should pass an extension of these tax cuts at least for those in the tax brackets below $100,000. The reality of the situation is that 85% of Americans earn less than $100,000 per year, and only 5.5% of Americans earn more than $150,000.

I have put together a chart of the current tax rates to compare them with what they were before the Bush tax cuts, and it’s below. As a college student, my tax rate is at the current 15% rate, and would increase over 60% to 25% if these tax cuts are allowed to sunset.

Tax Rate w/ Bush Cuts Income Level Federal Taxes Paid Tax Rates beginning Jan. 1, 2011 New Federal Taxes Paid
10% 0-$8375 0-$837.50 15% 0-$1,256
15% $8375-$34,000 $1,256-$5,100 25% $2,094-$8,500
25% $34,000-$82,400 $8,500-$20,600 28% $9,520-23,072
28% $82,400-$171,850 $23,072-48,118 31% $25,544-$53,273
33% $171,850-$373,650 $56,710-$123,304 36% $68,866-134-514
35% $373,650+ $130,777+ 39.6% $147,965+

The national median (where half of the population makes more and half makes less) is $44,389, according to Wikipedia.  Under the old/new tax rate, someone earning the median income would be paying $1,331 more in federal taxes alone per year. In today’s economy, that is a significant amount of money, and shouldn’t be discounted.

The “Bush Tax Cuts” also did a myriad of other items including a higher capital gains taxes, dividend taxes, phasing out of itemized deductions, exemptions, among others. I have yet to be convinced that raising the capital gains taxes and dividends taxes would effect the middle/lower classes. In order to begin to reduce the deficit and national debt, we need to look at how these taxes impact the average American.

President Obama, Congress, and more importantly Republicans that speak of being fiscally responsible should consider dedicating at least a portion of this added revenue to paying down the national debt. As a country we must do a combination of two things: cut costs and raise revenue. While I am very opinionated on ways to raise revenue, there are ways to do this. However, I do believe that when the government begins a program (whether a social program, military spending plan, or expanding the government’s role in something) it is incredibly difficult to keep costs under control.

Congress should not play partisan politics with people’s taxes and extend at least portions of the “Bush tax cuts”. Extending it will allow people to keep more of their own money, something that is important in economic challenging times. It is also an opportunity to make a dedicated, focused effort on lowering the federal deficit.


One Response to The Bush Tax Cuts and The Economic Recession

  1. Michael says:

    So I was going to comment on the Laffer curve, and remind you guys that the highest government revenues ever were collected five years after the Bush tax cuts went into effect. Then I was going to comment on how silly it is to talk about tax cuts for the lower and lower-middle classes since only 53% actually paid federal income taxes this past year; how do you cut zero?

    But then someone criticized the effectiveness of the tax cuts and simultaneously praised the 2009 stimulus bill. You will find very few allies praising that fiasco. Virtually all of the jobs “saved or created” were in government, and less than 25% was ever even intended for infrastructure, much less “shovel-ready” projects; that’s why some of it still hasn’t been spent yet. And since the stimulus represented a trillion dollars in deficit spending, I’m pretty Keynes would do a spit take if someone told him it was time for more deficit spending. Keynesian economics are popular with policy makers because it offers a quick fix. The paradox is that the fix must be quick, because Keynes thought that public debt was a bad thing. With public debt at about 80% of GDP in the US and most of the G20 calling for austerity measures, I think it’s safe to say that few would recommend more rounds of stimulus.

    A final note on Keynes: he advocated counter-cyclical spending. That means when private investment goes up during good economic times, government spending should go down. That’s not something our government has demonstrated a propensity, or even the potential, to do.

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