Ideology, Not Economics, May Be At Core of Tax Policy
Comparisons with the Clinton administration are also interesting, because the Democratic president and his like-minded Congress pushed through a tax-increase package in 1993.
The top income bracket was raised to 36 percent with a 10 percent surcharge for the top earners, creating am effective tax rate of 39.6 percent. The corporate tax rate was upped to 35 percent.
There were also tax increases on Social Security benefits and gasoline, as well as a repeal of the cap on ordinary income subject to the Medicare payroll tax. Taxes were cut, however, for some 15 million low-income earners.
The plan also included spending restraints and mandated the budget be balanced over a number of years.
In 1997, the Republican-controlled Congress pushed through a tax-relief and deficit-reduction bill that included a cut in the capital gains tax from 28 percent to 20 percent and a near doubling of the estate tax exemption. The package, however, did raise cigarette taxes and expanded or created tax credits.
GDP growth averaged 3.37 percent during Clinton's first time term and 4.45 percent in his second. Job growth averaged 2.3 million over the full presidency and tax receipts 19.16 percent. The deficit-to-GDP ratio averaged 2.6 in the first term and turned into a 1.1-percent surplus in the second.
The eight-year Bush presidency that followed posted average GDP growth of 1.76 percent and never once broke 4 percent in any given year. Just 133,000 jobs were created over the period
Tax receipts averaged 17.89 percent of GDP, but fell from 19.8 percent in 2001 to 17.9 percent in 2002, after the first of two tax-cut packages. The budget balance went from a 1.3-percent surplus in 2001 to a deficit in 2001 and averaged 1.97 percent over the presidency.
The combined Bush tax cuts of 2001 and 2003 were broader in scope but smaller in size when it came to income-bracket reductions. They were considered long-term, however, stretching out to 2010, which is a key in changing behavior. The top rate was reduced to 33 percent and the surcharge rate from 39.6 to 35 percent. The marriage penalty was largely eliminated and taxes on capital gains and dividends slashed.
The Bush presidency was also marked by increased spending on defense and homeland security in the aftermath of 9/11, as well as the $400 billion Medicare Prescription Drug Modernization Act, known as Medicare Part B, the biggest entitlement initiative in decades.
"We couldn't afford those tax cuts back when they were implemented by Bush. We can't afford them now," said David Stockman, Reagan's former budget director, referring to the nation's debt problem.
Even former Fed Chairman Alan Greenspan, who ardently backed the Bush tax cuts a decade ago, said extending them was unrealistic and unaffordable in the current budget environment.
Nevertheless, both Democrats and Republicans are pushing for expensive tax cuts at a time of extraordinary government spending and record-high budget deficits on the assumption that it will help an economy suffering from weak demand, which is holding back job creation.
The Democratic plan to cut taxes on all taxpayers except those in the two-top brackets would cost the government $2.9 trillion in lost tax revenue over a decade; the Republican plan--which applies cuts to all taxpayers—would mean another $700 billion in lost tax revenue.
“Whichever camp your are in—cutting taxes or raising rates—spending reductions are a necessary thing. While my side says tax reductions will produce robust growth we cant turn a blind eye to the expenditure side." says Pete Sepp. executive VP of the National Taxpayers Union. "It's been proven time and time again under Democrats and Republicans."