I thought this was going to be longer, but this will be done in two posts. It's fairly long, and it is a factcheck done at the request of creation. All sourcing is at the bottom. Statements have been made, in recent days, regarding the effect of the 2001 and 2003 tax cuts, on the deficit, debt, downgrade, etc… I will not be addressing those claims. What I will be establishing is whether or not they succeeded. In order to know whether they succeeded, first I need to establish the context and reasoning of the tax cuts, then determine their purpose. After that, I will look at the body of evidence on the matter, and explain my conclusion. So, the reasoning behind the tax cuts was based upon 4 premises. 1. Federal Taxes are the highest they have ever been during peacetime. 2. Americans […] work[ed] more than 4 months a year on average to fund government. 3. High taxes unfairly limit the participation of low-income earners, middle-class families, and seniors in today’s prosperity. 4. [Taxes] act as a success tax on entrepreneurs. The third is a subjective matter, and the fourth is a matter of debate, not fact. However, I will establish the veracity of the first two. Firstly, Federal taxes are the highest they have ever been, during peacetime. Now, since his plan is primarily discussing marginal income tax rates, that’s what we will establish. As of 1999, when this was written, the tax rates were 15%, 28%, 31%, 36%, 39.6%. Taxes have undergone many shifts over the years. However, from 1981 until 1986, we had 4 brackets higher than 39.6%: 42%, 45%, 49%, 50%. Prior to that, we had 7 brackets higher, from: 43-70%, then before that 14-19 higher brackets from: 40%-70%, with the highest marginal tax rate staying at 70% from 1965-1981. Before that, we had highest marginal tax rates in the 90%s, from 1944-1963. Before 1986, the last time the highest marginal tax rate was 39.6% or lower was in 1925-1931, at 25%. It was also lower, from 1913-1917. So, we had higher marginal tax rates from 1918-1924 and 1932-1986. The only time it was lower was from 1925-1931. For the second part of the claim, I will turn to the GPO. So, if government spending, at all levels, accounts for 28% of the GDP, then a fair rounding number would be approximately 30%, and since 30% of the total year is 4 months, it’s easy to see where the number came from. However, this is money from all sources. Now, as it pertains to the question at hand, of lowering marginal tax rates, we can only look at the revenue generated by the Individual Income Tax. Only 48% of the 4 months is from Individual Income Taxes, so we can only account for 2 months. So, while it isn’t relevant for the purposes of the proposal, from all taxes combined, it is roughly 4 months of work, to pay for the government. When looking at the proposal, though, it is only 2 months of work. While the first point isn’t true, and the second point is arguably true, that only helps us to frame the argument. It does not, in any way, diminish the potential for success of the tax cuts. To address the success of the tax cuts, we must now determine the purpose, and goals of implementation. From his proposal, there are five goals he wanted to accomplish with the tax cuts I will be establishing the changes in those five categories, for the 5 year period established in the proposal, and at their highest points, and lowest points during that period. First, social mobility. Now, his specifically stated goal was: The Middle Class can be measured in various ways. Depending on context, it can be by income, statistical location in the data set, or by occupation. Since measuring the change in a norm-adjusted number would provide us with no information, I will be looking at the Middle Class by income, and by occupation. Specifically, looking for changes from 2001-2008, based on implementation of the first tax cut, to 5 years after the second. Based on polling, most Americans considered the Middle Class, in 2007, to consist of those making between $40,000 and $80,000 a year. "Most people tend to think of themselves as middle class unless they're (billionaire investor) Warren Buffett or really poor," said J.D. Foster, an economist and senior fellow at the Heritage Foundation, a conservative think tank. Foster regards the upper 20 percent of earners as "upper income" and the lower 20 percent as "lower income." He regards the 60 percent in the middle as middle class, with household incomes roughly between $25,000 and $100,000. Another measure of the Middle Class is by occupation. Specifically, it is those who are in “professional” occupations. There are 106 professional categories, separated into 219-226 occupations, listed by the Department of Labor. For the sake of brevity, I will not list them all. However, I will use all of them in the calculations. Between the period of 2001-2008, the number of individuals in “professional” occupations went up by 1,550,030. During the same period, the number of individuals In the labour force went up by 12.002 million. The percentage of people in professional occupations went down by 1.317% between June 2001 and June 2008. This, however, is not necessarily an accurate measure of how the Middle Class changed during that time. For example, the average pay of those professions increased by $13,410.88 per year. During the same time period, the US went from an inflation adjusted GDP of 11,337.5 billion, to 13,161.9 billion. This means the relative average pay has gone up by 8.48%. Using the income-based analysis, we will look at how many people made between $25,000 and $100,000, according to Foster’s perception, and to estimate how many people made between $40,000 and $80,000, I will use the $35,000 to $75,000 measure, according to the general perception of the Middle Class. As of 2001, 55.8% of income earners made between $25,000 and $100,000 per year, and 32.7% of income earners made between $35,000 and $75,000 per year, with 23.8% making below $25,000 per year, and 20.4% making above $100,000. According to the official measure, 46.4% of income earners were in the middle 3 quintiles, leaving 50.1% in the highest quintile, and 3.5% in the lowest, giving a gini coefficient of 0.466. As of 2008, 66.5% of income earners made between $25,000 and $100,000 per year, and 31.7% of income earners made between $35,000 and $75,000 per year, with 25.4% making below $25,000 per year, and 19.9% making above $100,000. According to the official measure, 46.6% of income earners were in the middle 3 quintiles, leaving 50.0% in the highest quintile, and 3.4% in the lowest, giving a gini coefficient of 0.466. So, reviewing the information, we see that the number employed in professional, typically middle class professions, has gone down, though the average pay for these jobs has gone up. By income, we see that there was nearly a 20% increase in income earners between $25k and $100k, but a 3.1% decrease in the income earners between $35k and $75k, with a 6.7% increase in those making under $25k, and a 2.5% decrease in those making above $100k. What this means is the income is being relatively less stratified into the upper and lower class, but making a wider gap between the upper-middle class, and the lower-middle class. This leaves the gini coefficient unchanged. Since then Governor Bush did not specify an attempt to increase the size of the lower-middle class, the upper-middle class, or the middle-middle class, or addressing income inequality, and said a general attempt at increasing the middle class, he did succeed in this.
However, this does help us address his next goal with the tax cuts. This is far more subjective of a measure. However, the goal here is to help lessen the stratification of the Middle Class. As we established above, the income inequality is still there. While the inequality between the upper and lower class has been mitigated, the inequality amongst the middle class has been increased, which compensated for the change in inequality. This portion of the goal, then, has failed. The next goal is as follows. Before I begin this, I want to make clear that this is to encourage entrepreneurship. That means that the relative success or failure of the entrepreneurial activities are not relevant to this check. While entrepreneurship is difficult to measure, there are indicators. One primary indicator is the investment of venture capital. As you can see, the number of venture capital deals decreased from 2001 to 2008, from 4,582 to 4,085, however this is potentially misleading as there had been a temporary spike from 1998, and began falling in 2001, completing the fall in 2002, at 3,179. From there, it went to 4,085 in 2008. The amount invested total, seem to have followed a 6 year delay, with a 3 year temporary spike from 2003, and began falling in 2006, completing the fall from the spike in 2007. Both levels are at approximately the same level, removing the outlying surge that began in 1998, and can thus not be attributed to tax cuts in 2001 and 2003. Another common measure of entrepreneurship is the Total Entrepreneurial Activity Index (TEA Index), which measures a variety of factors including new start-up businesses, venture capital invested, among other factors, compiled by the Global Entrepreneurship Monitor. These are measured against the GDP of the country in question. In 2001, the TEA Index for the United States was 11.6%, and in 2008, it was 10.8%. While simply measuring the amount spent on venture capital shows an aberration, but no evidence that it was increased by the 2001/2003 tax cuts, the TEA index shows a slightly delayed drop in the relative entrepreneurship in the United States. While this does not necessarily indicate a causation (and I would strongly caution against such a conclusion) in the drop in entrepreneurship, there is no evidence that the rate of entrepreneurship in the United States was increased by the tax cuts. As such, I would rate this goal a failure as well. Next is Charity. This one is far more straight forward. Charitable giving went up from 2001 until 2008. The rise in charitable giving began in 1995, and levels off, or drops, during a recession. However, no immediately post-recession period for the past 50 years showed the level of increased charitable giving, as was shown after 2001, up through 2008. Given the increased incentives for charitable giving included in the 2001/2003 tax cuts, we can attribute this to them. Finally, comes the elderly. For this, I will be looking at two things. Are more Seniors working, and are Seniors making more, based on hours worked. In 2001, the involvement of those 55 and older, in the labor force, was 22.141 million, which rose to 26.751 million in June of 2008. As percentages of the labor force, that represents an 11.54% increase in their relative occupation of the workforce. This leaves us with the question of whether they were making more, based on the increased amount of work. In 2001, those who were 55+ made an average of $32,295.72, and in 2008, they made an average of $41,821.72. When we account for the increase in GDP, there is an increase of 11.55% in the average income, which is exactly correlated with their relative increase in the labor force. This would indicate that the goal of senior citizens getting more of their pay was not achieved, since the increase in average pay was non-existent once we compensated for the increase in the labor force, and increase in GDP. Where does this leave us for the 2001/2003 tax cuts? The 4 premises were generally misguided where they werent flat out wrong. However, the primary evaluation is in the 5 pillars upon which they were placed: social mobility, middle class families, entrepreneurship, charity and the elderly. For Social Mobility, we established that while the number of individuals employed in typically middle class professions contracted slightly, there was a larger increase in pay. In addition, there was a 20% increase in the number of workers making between $20k and $100k. This certainly established that the goal of increased social mobility into the middle class, was accomplished. Within the middle class, however, his second point, there was decreased mobility, and increased stratification, which means that this goal was not accomplished. Entrepreneurship in the United States showed a distinct decrease, over the same period of time, meaning that the goal of increasing entrepreneurship was not achieved. There was a very fast pick-up in the rate of charitable contributions after the 2001 recession, indicating the success of that goal. Senior citizens did not see a relative increase in wealth, meaning that this goal did not succeed either. It is certainly not as easy as just adding up and saying it was a 2/5 success, because not all of their pillars were of equal importance. The most important, by the plan he laid out, was social mobility, which was a success. Entrepreneurship was another big goal, with the other three coming in a fairly distant third in importance, for the goals of the tax cuts. Based on this evidence, I would say that the tax cuts were mostly a success, with some setbacks, as indicated in this analysis. I have my own raw data sheets. If people would like to review them, just send me a PM. Sources: http://campus.murraystate.edu/academic/faculty/mark.wattier/Purpose.pdf http://www.taxfoundation.org/publications/show/151.html http://www.gpo.gov/help/budget_citizens_guide_chart_descriptions.htm http://www.kff.org/kaiserpolls/upload/7702.pdf http://www.reuters.com/article/2010/09/14/us-usa-taxes-middleclass-idUSTRE68D3QD20100914 http://www.bls.gov/oco/oco1002.htm http://www.bls.gov/news.release/archives/ocwage_05012009.htm http://www.bls.gov/news.release/History/ocwage_11062002.txt http://www.bls.gov/news.release/history/empsit_07062001.txt http://www.bls.gov/news.release/archives/empsit_07032008.htm http://www.bea.gov/national/xls/gdplev.xls http://www.census.gov/prod/2010pubs/p60-238.pdf http://www.internationalentrepreneurship.com/total_entrepreneur_activity.asp http://www.aafrc.org/press_releases/releases/PR_021108.pdf http://www.philanthropy.iupui.edu/news/2010/06/pr-GUSA2010.aspx http://nccs.urban.org/statistics/quickfacts.cfm http://www.census.gov/population/socdemo/age/ppl-167/tab15.txt Further information is available upon request. This is all the raw data. I did some calculations in my head. Others are in excel. If you would like a look at any compiled information, just send me a PM.
Your "facts" take into account only one factor, income, but doesn't include the economy and a multitude of socio-economic factors. Such a simplistic analysis can't be considered remotely valid.
Peabody, you & I generally agree on many things politically, but to make such a challenge really ought to accompany an explanation of the flaws and a product showing how it should have been done.
The question for FactChecker was whether the Bush Tax cuts were a success. Since there was no measurable infurance on him to base the success on how it would affect the economy, he had to go off what the stated measurment for success put forth by those enacting the cuts. Did the tax cuts turn the slumping economy around in 2003? Yes. Was that the intended goal put forth by Bush, are you crazy? No politician would have put their reputation on the line for this major prediction.
Let me just address the 1st item. In 1999-2000 the United States was carrying out military operations against Iraq and had been since the Gulf War. In fact the United States has remained in almost a perpetual state of war with both overt military and covert paramilitary missions since WW II. Certainly Constitutionalists like myself will state that we haven't engaged in any Constitutional wars since WW II because Congress has not declare war on any nation since 1941 the fact remains that the US has been at war and we've enjoyed virtually no moments of "peacetime" where we're not engaged in either over military or covert paramilitary missions around the world. We could accept a statement that the United States was engaged in only limited war in 1999-2000 but we certainly weren't at peace. Of course this all changed in 2001 with the invasion of Afghanistan as the United States entered into a major war that continues to this day. We went even further by going to war against the People of Iraq in 2003. We then had two wars being conducted at the same time. Any rationalization for the tax cuts based upon the US being a peace in 1999-2000, even though it wasn't true, certainly went out the window by 2001-2003 which happens to be the same years that the revisions to the tax codes were made.
The only criteria that can be accurately used is whether taxes met expendatures. Tax cuts are certainly good for the American People but only if the government limits itself to spending based upon revenues. Because the Bush adminstration did not limit expendatures to revenues the deficit expendatures negated any success of the tax cuts. Had the federal government limited expendatures to revenues then the tax cuts would have been highly successful. Since the government didn't do this they were a failure.
Even if you took out the, "during peacetime" part, the only times the marginal tax rate has been lower, was 1925-1931, with the top marginal tax rate being at 25%, and 1913-1917 at 17% (that is working from memory, since I don't remember where it is, though it is somewhere in there). That explanation is the main reason I didn't just look at the "during peacetime" years. I should have mentioned it.
When the tax cuts were proposed by then Governor Bush, he stated five goals for them. These general points were further expounded upon in his policy outline.
This still ignores that with the tax cuts the government was still going to be able to fund expendatures plus have excess revenues to pay down the national debt. Did that happen? If not then the tax cuts failed to meet the goals that were established for them and would have to be judged to be a failure. Taxes are to fund government. If the taxes do not fund government then they are inadequite. Were the revenues enough to fund the expendatures of the government or not determines if the tax policies are a sucess or failure. Of course over-spending by Congress can cause revenues to fall short but the bottom line is that revenues must meet expendatures. If the revenues do not then either expendatures need to be reduced or taxes increased to provide additional revenue. The Bush tax cuts failed because they did not support expendatures either because they didn't provide enough revenue or because Congress spent more than it should have. Either way the tax cuts failed to provide the revenues necessary for the authorized expendatures.
That was not the goal proposed for them. It may have been an expectation that many had. However, when it was proposed, the goals given were the five that I used. Now, many may agree that your goal should have been the goal for them. That's speculative, though.
The rationalization for the tax cuts in 2001 were the CBO's 2000 projected $5.6 trillion budget surplus for the following ten years. This was condemned at the time as being "fuzzy math" similiar to the condemnation of the HCR bill in 2009 which also depended on "fuzzy math" by the Obama Adminstration. http://www.epi.org/publications/entry/issuebriefs_ib154/ I would suggest reading former President Bush's 2001 State of the Union Address where these tax cuts were proposed. Included in this speech was the president's proposal to reduce the national debt by $2 trillion and that was certainly a part of the same budget that included the tax cuts. Reducing the national debt was certainly a component of the tax cuts that Bush proposed. http://www.let.rug.nl/usa/P/gwb43/speeches/state_union_2001.htm
The tax cuts were proposed well before that, during the 2000 election. They were included in the pamphlet on Bush's policies. It's the first link in the OP. It outlines everything he wanted to do during his presidency (officially, obviously). Since he ended up getting the tax cuts he proposed, the reasoning he used originally, would be a much more clear impetus than something that happened later.
Thanks for sharing, FactChecker. Your remarks are very sincere, directly to the point and well crafted! These facts about the failure of the Obama stimulus packages were also very interesting. "Removing water from one end of a swimming pool and pouring it in the other end will not raise the overall water level. Similarly, taking dollars from one part of the economy and distributing it to another part of the economy will not expand the economy."
