Former President George W. Bush mused recently that if the tax cuts he signed in 2001 and 2003 weren’t named after him, maybe more people would like them. But what’s to like about a package of tax policies that contributed trillions to our national debt and to the consolidation of wealth among an unsustainably small minority of American families?
Well, there’s not much more to like about the eleventh hour legislation just passed by Congress that enshrines the vast majority of those policies permanently in the federal tax code.
The American Taxpayer Relief Act, passed by the U.S. Senate and then the House hours before we all went back to business on January 2, 2013, has generated thousands of contradictory headlines. It’s a tax hike on the rich! A tax hike on the poor! The middle class is saved! The middle class is screwed!
One thing is sure: the U.S. Treasury is screwed. Had these 2001 and 2003 tax cuts – scheduled to expire after ten years because of their onerous cost, but extended for another two in 2010 – actually been wiped from the books, we would have been on the fast track to deficit reduction even without any spending cuts. But having preserved the vast majority of those low rates and loopholes, we’ll be hemorrhaging almost four trillion dollars over the next ten years.
When we first learned of the Senate deal taking shape on New Year’s Eve, we wrote:
Today, several news reports indicate that the deal taking shape in Washington would raise less revenue than the President's December 17 proposal. There are reports that the threshold for higher income tax rates would be $400,000 for singles and $450,000 for married couples, and that this $450,000/$400,000 threshold would also apply to higher income tax rates on capital gains and dividends…. Congress should reject any deal that extends more of the Bush income tax cuts or Bush estate tax cuts than President Obama originally proposed to extend. America would be better off if Congress simply does nothing and allows the Bush income and estate tax cuts to expire completely.
When the Senate passed legislation based on that deal, we ran the numbers and published our results on New Year’s Day, 2013, we concluded:
The tax deal negotiated between Vice President Joe Biden and Senate Minority Leader Mitch McConnell and approved by the Senate early on January 1 would save less than half as much revenue as President’s Obama’s original proposal…. The Biden-McConnell deal includes estate tax provisions that are much closer to the even more generous rules of 2011 and 2012 than the 2009 rules.
After a false start and dramatic reconvening, the U.S. House passed that Senate-approved legislation moments before midnight on New Year’s Day, and the President signed it on January 3rd.
Our full analysis of the legislation is contained in two new reports:
Poorest Three-Fifths of Americans Get Just 18% of the Tax Cuts in the Fiscal Cliff Deal
The so-called Bush tax cuts that dominated fiscal debates for far too long are now history, and we may never speak of them again. But their legacy endures in our crippling deficit, and our growing economic inequality. And now, thanks to President Obama and the 112th Congress, they will continue to distort our tax system into the foreseeable future.