Obama vs. Bush: Who’s the Bigger Tax Cutter?

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Thu Sep-15-11 01:47 PM
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Obama vs. Bush: Who’s the Bigger Tax Cutter?

Obama vs. Bush: Who’s the Bigger Tax Cutter?

Different Cuts Reflect Different Philosophies

By Michael Linden, Michael Ettlinger

If you had to guess whether President George W. Bush or President Barack Obama cut taxes more in his first term, which one would you choose? Probably President Bush, right? After all, the “the Bush tax cuts” were massive. And President Obama is the one calling for the expiration of some of those tax cuts. He’s also pushing for more revenue as we try to address our long-term fiscal imbalance.

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President Obama’s tax cuts versus President Bush’s tax cuts

President Bush enacted his tax cuts in 2001 and 2003, and over their 10-year lifespan, they reduced tax revenues by around $2.4 trillion, with $474 billion of that coming in the first four years. The first-term impact of those tax cuts is equivalent to about $574 billion in today’s dollars, or about 1.1 percent of gross domestic product.

President Obama has also signed two major pieces of tax-cutting legislation into law. The first, the American Recovery and Reinvestment Act, included a variety of tax cuts that benefited nearly every single American household. ARRA contained the Making Work Pay tax credit that directly reduced a family’s income tax bill by up to $800, which, overall, reduced tax revenue by about $116 billion. It included expansions of the child, earned income, American Opportunity, and first-time homebuyer tax credits. ARRA patched up the alternative minimum tax, providing $70 billion in tax cuts, and cut a wide array of business taxes, together totaling another $60 billion.

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First, President Obama’s tax cuts are much more targeted at the middle class. The Bush tax cuts were heavily skewed toward the wealthy with more than half of the entire benefit going only to the richest 20 percent. President Obama’s tax cuts, on the other hand, are distributed more evenly. Eighty-five percent of the benefits of the Making Work Pay tax credit, for example, went to the bottom 80 percent of households, and because the very wealthy don’t pay payroll taxes on all of their income, the payroll tax cut, too, benefits the middle class much more than the Bush tax cuts did.

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New CBO Report Finds Up to 2.9 Million People Owe Their Jobs to the Recovery Act

Poverty and income trends continue to paint a bleak picture for working families

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A quick comment on the effect of ARRA

How did the American Recovery and Reinvestment Act of 2009 (ARRA) affect the 2010 poverty and income numbers? Because ARRA was passed in February and was in the process of ramping up through the end of 2009, its full impact was felt in 2010. ARRA primarily affected these numbers by creating and saving jobs, the earnings from which otherwise would not have been there supporting family incomes. The Congressional Budget Office estimates that the Recovery Act created or saved around one million full-time equivalent jobs in 2009, and 3.4 million jobs in 2010. Without these jobs, the decline in income and increase in poverty would have been much more dramatic. In other words, the new Census Bureau report is ugly, but without ARRA, it would have been much uglier. This underscores the growing impact of the end of ARRA—in the current quarter, ARRA is supporting only 2.3 million full-time equivalent jobs, and the number of jobs supported drops to half a million by the fourth quarter of 2012. This means that the loss of the boost from government action is—and without additional intervention will continue to be—a substantial drag on jobs and family income.

What about the direct income supports in ARRA? Of three major income supports in the stimulus—unemployment insurance, nutritional assistance (food stamps), and tax cuts—only unemployment insurance is counted in the income numbers just released; the income numbers include cash income received from programs such as unemployment insurance, but exclude noncash benefits like food stamps, and are measured before payments of taxes, so they do not reflect reductions in taxes. While unemployment insurance benefits replace a maximum of half of a worker’s prior earnings, these benefits went to workers who were laid off and who had low odds of quickly finding another job (in 2010, there were 5.3 unemployed workers per job opening on average). In other words, these unemployment benefits went to families that otherwise would likely have suffered even steeper income declines, and in some cases dropped below the poverty line. Census data show that 3.2 million people were kept out of poverty in 2010 by unemployment insurance benefits alone.

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