Senate Democrats

Myth vs. Reality: Bush Republican Tax Breaks

The Reality is the Bush Republican Tax Breaks Won’t Stimulate the Economy or Benefit Most American Families

MYTH:           The Bush Republican tax breaks have led to economic growth.

REALITY:      The tax cuts have not increased economic growth nor stimulated investment.

Passage of the Bush Republican tax breaks seven years ago has led to the weakest economic expansion since World War II.

The tax breaks were supposed to create economic growth by increasing private sector investment. But investment growth following the tax breaks has been extremely slow – much slower than under President Clinton, who raised taxes and reduced government borrowing that was "crowding out" private investment.

(Joint Economic Committee, 4/14/2008)

MYTH:           Renewing the Bush Republican tax breaks will lead to economic growth over the long run.

REALITY:      Major studies have found that the long-term growth effects of the Bush Republican tax breaks range from negative to very small.

Numerous non-partisan studies by the Joint Committee on Taxation, the Congressional Budget Office, and outside experts have found that the growth effects of the Bush Republican tax breaks will be very small at most, and may be negative.

President Bush’s own Department of Treasury estimates that, under their most favorable scenario, the tax breaks will increase long-term growth by at most four one-hundredths of one percentage point per year.

Any growth effects of the tax breaks depend on paying for them by cutting government spending, rather than financing them through borrowing. And tax cuts paid for by cuts in government spending would likely lead to net income losses for the majority of Americans. This is because the Bush Republican tax breaks are weighted toward the rich, while government spending tends to benefit all Americans equally.

(Joint Economic Committee, 4/14/2008)

MYTH:           The Bush Republican tax breaks would benefit most Americans.

REALITY:      The Bush Republican tax breaks are heavily weighted toward the wealthy.

One-third of the total dollar benefits of renewing the Bush Republican tax breaks would go to the top one percent of taxpayers. Amazingly, one fifth goes to the top three-tenths of one percent of taxpayers who earn $1 million per year or more. The tax cuts only appear to benefit middle-class Americans all because we are borrowing money from our children. Eventually, we would have to pay for tax cuts by reducing spending.

In addition, some three-quarters of American families would have a net loss in income from tax cuts financed by across-the-board spending cuts. This is because the Bush Republican tax breaks are weighted toward the rich, while government spending tends to benefit Americans more equally.

Even today, before we have paid the Bush Republican tax breaks back, middle-class families do not gain much from them. The wealthiest Americans experience income gains of seven to eight percent thanks to the tax cuts, while middle-class families get just a two-percent gain. (Joint Economic Committee, 4/14/2008)

Democrats want to preserve the middle-class portion of the tax cuts, eliminating only the one-third that goes to the top one percent. (See Democratic Policy Committee, Democrats Are Committed to Relieving Tax Burden on the Middle Class, 4/11/2008)

MYTH:           The Bush Republican tax breaks will "pay for themselves."

REALITY:      Any revenue feedback effects from the tax breaks will be small compared to the direct costs of tax cuts.

Non-partisan analyses by the Congressional Research Service, the Congressional Budget Office, and the Joint Committee on Taxation have concluded that growth effects would offset ten percent or less of the revenue losses due to the Bush Republican tax breaks.

Greg Mankiw, the former chairman of the Council of Economic Advisors under President Bush, wrote in his macroeconomic textbook that there is "no credible evidence" that tax cuts pay for themselves and that an economist who makes such a claim is a "snake oil salesman who is trying to sell a miracle cure." In addition, the current chairman of the President’s Council of Economic Advisors, Edward Lazear, stated in testimony before the Joint Economic Committee that "I certainly would not claim that tax cuts pay for themselves"

Meanwhile, the Congressional Budget Office predicts that extending the Bush Republican tax breaks and related AMT relief would lead to an additional $3.4 trillion in Federal borrowing over the next decade. (Joint Economic Committee, 4/14/2008)

MYTH:           Renewing the Bush Republican tax breaks stimulates the economy.

REALITY:      Tax extension would not take place until 2011; there would be no immediate stimulus effect for 2008.

The most effective economic stimulus is targeted toward low-income households who will spend it quickly. The one-third of the Bush Republican tax breaks that goes to the top one percent of households (with incomes of over $300,000 per year) would not serve as effective economic stimulus even in 2011. In fact, renewing the tax cuts today could harm the economy, by signaling continued massive government borrowing in the future. (Joint Economic Committee, 4/14/2008)

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