PAD 510 Position Paper

Running head: HISTORICAL PERSPECTIVE 1

HISTORICAL PERSPECTIVE 5

Bush Tax Cuts

Delores Blango

Strayer University

Dr. Timothy Smith

PAD 510

April 25, 2020

Bush Tax Cuts

Policy Overview

Tax cut policies were discussed over George W. Bush and Obama’s administrations. They were changes to the tax code, initially passed during President George W. Bush’s presidency and extended to Barack Obama’s presidency (Zidar, 2019). Commonly referred to as the Bush tax cuts, they were a serried of tax acts enacted by the congress to American families. The Bush tax cuts included the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) (Zidar, 2019). Due to the sunset provision in this tax cuts, there was an extended debate which was resolved by President Barack Obama through the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation At of 2010 and the American Taxpayer Relief Act of 2012 (Vianna, 2017).

Historical Perspective and Urgency

The tax cuts came about from Bush’s campaign policies, in which he had promised Americans that he would lower taxes if elected. Upon taking office, Bush felt that the best way to use the budget surplus that was develop in Bill Clinton’s Administration was through lowering taxes (Gale et al., 2019). Furthermore, Bush argued that the tax cuts would help minimize the tax burden for the low income earners and increase the rate of economic growth. That is, the tax burden became higher for the rich, while the poor shoulders fewer burdens (Gale et al., 2019). However, there were arguments that the tax cuts would increase the national debt, which the President Bush refuted.

The Bush Tax cuts had a sunset provision, whereby the country would revert back to the old tax system in by the end of the year 2010. There was urgency in the development of other

public policies as a way of dealing with the previous provisions. The laws passed by President Obama’s administration helped to ensure that fewer households experienced tax increases. The biggest worry at the time was the increasing national debt, whereby some members of the congress felt that the tax cuts would have more adverse effects on the economy (Yuhn & Bennett, 2016). Therefore, Obama developed a bill that not only maintained low tax for single people and married people with yearly incomes of not more than $400,000 and $450,000 respectively, but also provided other economic incentives that would offset the debt.

Social, Economic, and Political Environments

The United States economy was experiencing a slow economic growth at the time when George W. Bush became the president. According to Yuhn and Bennett (2016) changes in tax policy has an impact on the investment spending within a country. Therefore, Bush’s idea was to lower the taxes for households, which in return would increase personal disposable income. Consequently people would have more disposable income to use in investment, successfully driving economic growth. Furthermore, the tax cuts were put in place when there was a need to increase employment opportunities for Americans (Zidar, 2019).

There was considerable political controversy surrounding the incorporation of the tax cuts. The Democratic Party congressional opponents criticized the cuts, arguing that it would increase the income inequality gap (Yuhn & Bennett, 2016). On the other hand, in Obama’s presidency there was a debate as to whether the country would revert back to the previous legislation or the Bush tax cuts would be continued. Republican senators argued that filibustering would be a good strategy to prevent the development of a new legislation. Furthermore, there were speculation that President Obama was engaging a political triangulation at the time of these debates before deciding to extend the tax cuts of two years.

The United States has always had social relationship networks, in which the Americans interact with one another and give their opinions concerning different factors affecting their country. The Bush tax cuts were publicized, whereby the people debated on whether these public policies would benefit all people or just a portion of the society (Yuhn, & Bennett, 2016). The people felt that the wealthy were more likely to benefit from the tax cuts, especially because they benefited from other economic policies. During Obama’s administration, the policy debate came at a time when many people were using social media. Therefore, the extension of the tax cuts was widely discussed online, with citizens providing varying opinions.

Policy Critique

Although the Bush tax cuts did decrease the income tax for most households, the benefits were mostly ripped by the high income families. The tax cuts contributed to 4.1% tax rates fall for to 1% in the U.S. economy while for the rest of the Americans it only reduced by 2%. Therefore, it can be concluded that the Bush tax cuts were not an effective strategy as the poor still had to deal with a high tax burden when they are receiving a low income. However, the amendments made by the Obama’s administration seem to yield more benefits to the country (Vianna, 2019). They had tax cut remain low for the low income earners, while the rest of the households continue to pay high taxes. Additionally, the policy signed by Obama included jobs legislation. This policy has led to an increase in capital stock, productivity, and higher wage rates (Gale, Gelfond, Krupkin, Mazur, & Toder, 2019).

References

Gale, W. G., Gelfond, H., Krupkin, A., Mazur, M. J., & Toder, E. J. (2019). Effects of the Tax Cuts and Jobs Act: A preliminary analysis. National Tax Journal, 71(4), 589-612. https://www.taxpolicycenter.org/sites/default/files/publication/155349/2018.06.08_tcja_summary_paper_final.pdf

https://www.researchgate.net/profile/Andre_Vianna4/publication/318079731_Effects_of_Bush_Tax_Cut_and_Obama_Tax_Increase_on_corporate_payout_policy_and_stock_returns/links/5a2f6a464585155b617a3285/Effects-of-Bush-Tax-Cut-and-Obama-Tax-Increase-on-corporate-payout-policy-and-stock-returns.pdf

Vianna, A. C. (2017). Effects of Bush Tax Cut and Obama Tax Increase on corporate payout policy and stock returns. Journal of Economics and Finance, 41(3), 441-462.

Yuhn, K. H., & Bennett, C. S. (2016). A Note On The Bush Tax Cuts: Did They Succeed In Stimulating Business Investment?. Macroeconomic Dynamics, 20(6), 1623-1639.

Zidar, O. (2019). Tax cuts for whom? Heterogeneous effects of income tax changes on growth and employment. Journal of Political Economy, 127(3), 1437-1472. https://scholar.princeton.edu/sites/default/files/zidar/files/tax_cuts_for_whom_oct2017.pdf