Are Bush tax cuts behind the Obama malaise?
President Barack Obama has displayed an insatiable appetite for higher taxes, but Americans are wary of trusting him with any more of their money.
He has demonstrated staggering economic incompetence, manifested in his weak “recovery,” a $1.3 trillion deficit, doubling gas prices, and unemployment that remains above 8 percent. For each of his economic failures, Obama has a scapegoat—“speculators,” the “top one percent,” or his favorite, the Bush tax cuts of 2003. At various times, he has blamed these tax cuts for his weak economy, for his deficit, for allowing the rich to avoid paying their “fair share” of taxes, and for harming middle class incomes.
On each of these points, the president’s claims are the exact opposite of the truth, as is shown by his own government’s statistics. (See table below.)
From the crippling dot-com bust and terrorist attacks of 2001 until the tax cuts of 2003, real gross domestic product growth hobbled along at an average of just 1.8 percent per year. Far from further weakening this performance, the Bush tax cuts increased real GDP growth to 2.78 percent per year through 2007, when the housing bubble burst.
Rather than increasing the deficit by reducing revenues, the Bush tax cuts actually increased revenues, reducing the deficit. Before the tax cuts, federal tax receipts had been falling an average of 4.14 percent per year. The Bush tax cuts reversed this trend: by cutting tax rates, they increased tax revenues by a remarkable average of 9.62 percent per year. As a result the deficit, which had hit $378 billion before the tax cuts, was slashed by more than two-thirds during this period.
Did the Bush tax cuts allow “the rich” to avoid their “fair share” of taxes? On the contrary, the Bush tax cuts actually increased the share of total income taxes paid by the wealthiest Americans. Before the tax cuts, the top one percent paid an average of less than 34 percent of all income taxes each year. The Bush tax cuts increased this to more than 39 percent. The president’s argument that eliminating these tax cuts would make the rich pay their fair share implies that they were paying their fair share before the tax cuts, which implies that their fair share is only 34 percent. Given his Mr. Spock-like “adherence to logic,” one must conclude that Obama secretly believes that, at 39 percent, the rich are now paying more than their fair share.
Nor was this increase in the share of taxes paid by the rich achieved by causing middle class incomes to stagnate or fall. Before the tax cuts, the adjusted gross income of the bottom 75 percent of Americans was growing an average of just 1.44 percent per year. As a result of the Bush tax cuts, the income growth rate of the bottom 75 percent more than doubled, their adjusted gross income per capita increasing an average of 3.24 percent per year.
Nor are the positive results of the Bush tax cuts an aberration. In 1997, President Clinton cut the capital gains tax from 28 to 20 percent. As shown in the table, the results were much like those of the Bush tax cuts.
If President Obama really wants to grow the economy, increase revenues, shrink the deficit, shift more of the tax burden onto the rich, and raise middle-class incomes, he must learn from history. If he really wants what he says, Obama must cut taxes. If he can’t stomach copying George W. Bush, perhaps he could call it the “Clinton Rule.”