Bush Tax Cuts

What Are the Bush Tax Cuts?

The Bush tax cuts were a series of temporary income tax relief measures enacted by President George W. Bush in 2001 and 2003. They occurred through two pieces of legislation: the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA).

Understanding the Bush Tax Cuts

The Bush tax cuts included two separate measures that were passed to provide tax relief to families in 2001 and to businesses in 2003.

The measures lowered federal income tax rates for everyone, decreased the marriage penalty, lowered the capital gains tax and the tax rate on dividend income, and increased the child tax credit.

They also eliminated several items, phasing out personal exemptions for higher-income taxpayers and on itemized deductions. New limits were placed on the estate tax.

The Bush Tax Cuts for Families

The first tax code change, formally known as the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, was an income tax relief measure that was intended to stimulate the economy during the recession that followed the bursting of the dot-com bubble — the sudden collapse of internet and digital technology stocks and the loss of trillions in investment dollars.

Some of the benefits of the EGTRRA tax cuts included:

The tax cuts were initiated to provide families with more disposable income in the hopes that the additional funds would spur spending and pump money into the economy. However, many taxpayers saved or invested their refunds instead.

The problem was that many of the tax breaks provided a greater benefit to the top 20% of income earners than they did to middle and lower-income earners.

The Bush Tax Cuts for Businesses

The second change to the tax code was enacted in 2003. Called the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA), it was introduced to provide a series of tax cuts for businesses and to accelerate the tax changes passed in the 2001 EGTRRA. By putting more money in the pockets of businesses and investors, and encouraging investment in the stock markets, JGTRRA aimed to add more steam to the economy’s recovery.

Specifically, the JGTRRA:

The Extension of the Bush Tax Cuts

The Bush tax cuts under EGTRRA and JGTRRA were slated to expire in 2010 and 2008, respectively. However, following the 2008 economic recession, the tax cuts were extended to 2012.

In fact, the tax cuts were in place for so many years that they began to feel permanent, and taxpayers and politicians raised a major outcry as their expiration date approached. Though the recession had technically ended, many Americans were still reeling from its effects.

With a fiscal cliff still looming over the economy, the cuts were saved from extinction when President Barack Obama signed the American Taxpayer Relief Act of 2012 in which the Bush tax cuts for single taxpayers with less than $400,000 in income and married couples with less than $450,000 were retained.

Those who wanted to let the Bush tax cuts expire as scheduled argued that the government needed the extra tax revenue in the face of its massive budget deficits. Those who wanted to extend the Bush tax cuts or make them permanent argued that higher taxes reduce economic growth and stifle entrepreneurship and incentives to work.

The Downside of the Bush Tax Cuts

The Bush tax cuts, coupled with the war spending on Iraq, led to a budget deficit from the reduction in tax revenues received by the government. In fact, the budget deficit for the fiscal year 2009 was $1.4 trillion, the largest deficit relative to the economy since the end of World War II.