Research Briefing

Obama To Let 2001, 2003 Tax Cuts Expire, Leading To Largest Tax Increase In American History

TAX CUTS PASSED WITH BIPARTISAN SUPPORT IN 2001, 2003 GOT OUR ECONOMY MOVING AGAIN AND CREATED JOBS

In 2001, 28 House Democrats Joined House Republicans In Lowering Tax Rates On Income, Dividends, Capital Gains. (H.R. 1836, Economic Growth And Tax Relief Reconciliation Act Of 2001, Roll Call Vote #149, Approved 240-154, R: 211-0, D: 28-153, I: 1-1, 5/26/01)

• And 12 Senate Democrats Joined 46 Senate Republicans In Supporting The Legislation. (H.R. 1836, Economic Growth And Tax Relief Reconciliation Act Of 2001, Roll Call Vote #170, Approved 58-33, R: 46-2, D: 12-33, 5/26/01)

In 2003, 7 House Democrats Joined House Republicans To Further Reduce Taxes On Income, Dividends, Capital Gains. (H.R. 2, Jobs And Growth Tax Relief Reconciliation Act Of 2003, Roll Call Vote #225, Approved 231-200, R: 224-1, D: 7-198, I: 0-1, 5/23/03)

• And 2 Senate Democrats Joined 48 Senate Republicans In Supporting The Legislation. (H.R. 2, Jobs And Growth Tax Relief Reconciliation Act Of 2003, Roll Call Vote #196, Approved 50-50, Vice President Voted Yea, R: 48-2, D: 2-47, I: 0-1, 5/23/03)

After 2000-2001 Recession, Tax Cuts On Capital Gains, Dividends And Payroll Increased Economic Growth. “Cutting the tax rates on dividends and capital gains was found to increase output in the long run by 0.4 percent, primarily by expanding the capital stock and enhancing labor productivity … Cutting the top four wage tax rates caused even a larger increase, 0.7 percent, primarily by increasing labor supply.” (Robert Carroll, “The 2001 And 2003 Tax Relief: The Benefit Of Lower Tax Rates,” Tax Foundation, 8/23/08)

Income Tax Cuts Created Jobs Immediately. “The 2003 tax cuts lowered income, capital gains, and dividend tax rates. These policies were designed to increase market incentives to work, save, and invest, thus creating jobs and increas­ing economic growth. An analysis of the six quarters before and after the 2003 tax cuts (a short enough time frame to exclude the 2001 re­cession) shows that this is exactly what hap­pened… The economy lost 267,000 jobs in the six quar­ters before the 2003 tax cuts. In the next six quarters, it added 307,000 jobs, followed by 5 million jobs in the next seven quarters.” (Brian M. Riedl, “Ten Myths About The Bush Tax Cuts,” The Heritage Foundation, WebMemo #2001, 1/29/07)

Lower Income Tax Rates “Boosted Incentives For Work, Savings And Investments.” “But the real story here is the success of the 2003 Bush tax cuts.  As expected, cutting taxes on dividends and capital gains and paring marginal income tax rates boosted incentives for work, savings and investments. Lower tax rates produced a dramatic increase in economic growth. … Just as predictably, cutting taxes eventually produced more, not less, tax revenues for the federal coffers. In 2005, federal tax revenues increased by $274 billion, a whopping 15 percent hike over the previous year. For the first nine months of the 2006 fiscal year, tax revenues are up another 12 percent-plus, or $206 billion.” (Robert J. Caldwell, Op-Ed, “Bush’s Strong Economy Performs,” The San Diego Union-Tribune, 6/16/06) 

BUT NOW OBAMA AND PELOSI WANT THEM GONE, WOULD OWN TWO LARGEST JOB-KILLING TAX INCREASES IN AMERICAN HISTORY …

Obama’s FY2011 Budget Includes Nearly $1 Trillion Income Tax Increase By Letting Much Of 2001, 2003 Tax Cuts Expire. “President Barack Obama's $3.8 trillion budget for fiscal 2011 raises $2 trillion in taxes, cuts spending on programs with considerable political support and still leaves the nation with $8.5 trillion in additional debt over the next decade.”; “Taxes on high-income earners would rise by nearly $1 trillion over the next 10 years, under the budget plan put forward by President Barack Obama on Monday. The bulk of that increase comes as tax cuts enacted under President George W. Bush expire at the end of 2010.” (Jonathan Weisman, “White House Proposes $3.8 Trillion Budget,” The Wall Street Journal, 2/1/10; Martin Vaughn, “Tax Cuts To Expire For Top Earners,” The Wall Street Journal, 2/2/10)

• House Speaker Nancy Pelosi (D-CA) Attempted To Spin Tax Increase As “Eliminating A Tax Decrease That Was There.” CNBC’s MARIO BARTIROMO: “On the tax issue, allowing the Bush tax cuts to expire would essentially be a tax increase.” PELOSI: “It isn't a tax increase, it is eliminating a tax decrease that was there.” (CNBC’s “Closing Bell,” 10/21/09)
  
  
• This Comes After Obama Signed Government-Run Health Care Bill With $570 Billion In Job-Killing Taxes On Small Businesses, Investments And Innovation. (Douglas W. Elmendorf, Letter to Speaker Nancy Pelosi, 3/18/10)
  
  
• With These Two Increases, Obama Would Own The Two Largest Tax Hikes In American History, Surpassing Bill Clinton’s $241 Billion Increase In 1993. “Who rightfully can claim – or deny – the dubious distinction of supporting the largest tax increase in American history … Since 1993, Republicans readily have saddled President Clinton with that honor after he pushed through a reluctant Congress the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) … The Joint Committee on Taxation estimated [the Tax Equity and Fiscal Responsibility Act of 1982] TEFRA … would increase revenues by about $235 billion over five years. OBRA ’03 … was estimated by the JCT to raise about $241 billion over five years. On that count, President Clinton wins. (Louis Lyons, “TEFRA ’82 v. OBRA ’93: Whose Tax Increase Was Bigger?” Tax Notes Today, 8/26/96)

Obama’s Income Tax Rate Increase Will Hit Small Businesses That Create 60 To 80 Percent Of New Jobs, “Discouraging” Their “Growth Or Expansion.” “They want to restore the higher, Clinton-era tax rates on the top two individual income brackets, increasing the 33 and 35 percent rates to 36 and 39.6 percent. But these higher rates won’t just hit high wages; they’ll hit business income … Depending on how we define ‘small business,’ these higher tax rates would raise taxes on 45 to 55 percent of small business income … So why should we pay attention to the way our tax code treats small businesses? They are an important source of innovation and risk-taking, creating between 60 and 80 percent of net new jobs, employing over half the labor force ... Higher income tax rates reduce the investment spending of entrepreneurs and the likelihood that they invest at all, discouraging the growth or expansion of small businesses.” (Robert Carroll, “Small Business And The Personal Income Tax Rates,” Tax Foundation, 10/28/08)

Obama’s Higher Income Tax Rates Will Stifle Entrepreneurship And Hurt “An Important Source Of Innovation.” “The impact of the higher tax rates on the entrepreneurial sector is also particularly troubling. An often underappreciated feature of our tax system is that roughly one-third of all business taxes are paid by owners of flow-through businesses … when they file their individual tax returns. These businesses are an important source of innovation and risk taking.” (Robert Carroll, “The Economic Cost Of High Tax Rates,” Tax Foundation, 7/29/09)