Budget 101: The Bush Tax Cuts

September 19, 2012

One year after the debt ceiling crisis, Congress and the president again face a series of tough decisions regarding federal spending and deficit reduction. With so much at stake in this debate, we’ll be breaking down the details of the impending across-the-board cuts, also known as sequestration. Check back every Wednesday through October 10 for new posts, and catch up on Budget 101 by reading last week’s lesson.

Tax cuts enacted in 2001 and 2003, commonly known as the Bush tax cuts because they were passed during George W. Bush’s presidency, are set to expire in January 2013. When these tax cuts were passed, proponents argued that Americans with more take-home income would spend more money and therefore stimulate economic growth. However, studies of the tax cuts have found that they added to the federal deficit and contributed to a trend of concentrating wealth among the richest Americans.

Also in January, $500 billion in across-the-board cuts in discretionary spending — evenly split between security and non-defense programs — will go into effect and run through 2021. These automatic cuts are known as sequestration. If these drastic spending cuts are made and the tax rates return to their higher year-2000 levels, the deficit over the next 10 years is projected to increase by $2.9 trillion. If elected officials prevent sequestration and extend all of the tax cuts in addition to extending emergency unemployment insurance the deficit is projected to increase an additional $10.7 trillion through 2021.

Policy makers have considered a few options for the tax cuts:

  • Extend the reduced tax rates for individuals who earn less than $200,000 and for couples filing jointly below who earn less than $250,000. For the 2.5 million households whose incomes are over that threshold, tax rates would increase to between 36 percent and 39.6 percent — the same rates paid in 2000.
  • Extend the tax cuts for those who earn less than $1 million.
  • Extend all of the Bush tax cuts for one year.

AAUW advocates for making smart choices about federal spending and the growing deficit. Extending the 2001 and 2003 tax cuts for individuals who earn up to $200,000 and couples who earn up to $250,000 would protect the middle class while increasing government revenue to pay down the deficit and protect important programs. The extension of all tax cuts would not advance our AAUW priorities, including expanding access to higher education, closing the achievement gap among elementary and secondary students, promoting career and technical education, expanding affordable health care, and advocating for gender equity in employment and education.

Check back on September 26 for the next post in our Budget 101 series, a primer on payroll tax cuts.

This post was written by AAUW Public Policy Intern Madeline Shepherd.

By:   |   September 19, 2012

2 Comments

  1. Diane Calabria says:

    Thank you for this easy-to-understand explanation of a situation that is staring us in the face, yet so few seem to be able to penetrate through the political rhetoric to recognize it for the real problem that it is. We all know that in our own households, we cannot spend more than we take in year after year after year without a painful day of reckoning coming. Common sense tells us that the same simple principle applies to even a very large organization called the federal government.

  2. […] to the Clinton-era tax rates for high-income earners while continuing the current rates for individuals earning less than […]

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