In 2000, George W. Bush won the presidency by the narrowest of margins in the Electoral College. Graetz calls this “a fateful turning point for antitax advocates.” They would not achieve their most radical goals of abolishing income taxes or replacing the progressive income tax with a “flat tax” where all incomes were taxed at the same rate. But they would succeed in lowering tax rates again, especially for the wealthy.
Bush—from surplus to deficit
“Bush and his team designed his tax plan to include an across-the-board reduction in income tax rates that provided the greatest benefits to the top but also cut income taxes for everyone.” Two tax bills accomplished Republican aims, the Economic Growth and Tax Relief Reconciliation Act of 2001, and the Jobs and Growth Tax Relief Reconciliation Act of 2003. Together they lowered the top bracket rate from 39.6 percent to 35 percent, reduced the lowest rate from 15 percent to 10 percent, further reduced estate taxes, increased the child tax credit and extended it to higher-income families, reduced capital gains taxes, and taxed dividends at the low capital gains rates instead of ordinary income rates. The projected cost of the tax cuts was reduced by scheduling some of them to expire at the end of 2010.
The Bush administration was not deterred in its tax cutting by having to spend money on homeland security and Middle East wars following the September 11, 2001 terrorist attacks. The administration also added an unfunded prescription drug benefit to Medicare. By 2004, federal revenue had fallen to 15.6 percent of GDP, the lowest since the 1950s. The surplus that existed when Bush took office had turned into a deficit of 3.4 percent. This time, deficits would turn out to be a normal feature of federal budgets.
Near the end of Bush’s two terms, the Global Financial Crisis and ensuing Great Recession led Congress to enact economic stimulus legislation, which helped the economy but made the deficit worse. The measures included tax rebates of $300 per individual taxpayer and $300 for children, which phased out for higher-income taxpayers. The Keynesian idea of boosting the economy from the bottom up was coming back in style, but Republicans still preferred tax breaks to new domestic spending programs.
Obama—economic stimulus and resistance
Barack Obama became president in 2009 during the worst economic recession since the Great Depression. His American Recovery and Reinvestment Act tried to stimulate the economy with tax cuts, aid to the states, and infrastructure projects. It included the “Making Work Pay” credit that temporarily reduced taxes for working families by up to $800 in 2009 and 2010. In those two years, the deficit soared to about 9 percent of GDP.
Obama also wanted to fulfill his campaign promise of making health insurance more affordable. In 2010, Democrats narrowly passed the Patient Protection and Affordable Care Act (popularly known as Obamacare). It required taxpayers to carry health insurance, expanded Medicaid coverage, and subsidized insurance for other low-income taxpayers. It relied for funding on a combination of taxes on high-income individuals, health insurers, pharmaceutical companies, and medical device manufacturers.
Republicans steadfastly opposed Obama’s fiscal agenda. Their priority was extending the Bush tax cuts.
The antitax movement entered a new phase with the emergence of the Tea Party. The triggering event was Obama’s proposal to assist homeowners facing foreclosure. The collapse of the housing market had left many homeowners owing more than the market value of their home. Critics revived the old claim that Democrats were spending the money of hard-working taxpayers to assist undeserving deadbeats.
In the 2010 midterms, Republicans gained 63 seats in the House, the largest increase in over sixty years. They had a lot of bargaining power too, because Obama needed their cooperation to raise the debt ceiling to accommodate the growing national debt. In return, Obama had to agree to cut spending.
The Bush tax cuts were scheduled to expire at the end of 2010, but allowing taxes to rise was politically very difficult in the face of Republican opposition and a struggling economy. The Bush cuts were extended for two more years. Then in 2012, the American Taxpayer Relief Act made most of the cuts permanent, except those affecting the top 1% of taxpayers. The top tax rate was raised from 35 percent back to what it was under President Clinton, 39.6 percent. The government gave up most of the revenue it could have had by letting the tax cuts expire. Instead, it relied on austerity on the spending side to bring down the deficit to around 3% by the end of the Obama administration. Graetz concludes, “Despite Republicans’ moaning, they had won the war over taxes. Republicans remained steadfast against tax increases at any time.”
Trump—another round of tax cuts
Donald Trump was an unconventional Republican who appealed more to “America first” nationalism than to traditional free-market economics. His most well-known goals were restricting immigration, reducing foreign imports and bringing back American manufacturing jobs. Nevertheless, he followed the new Republican orthodoxy that called for tax cuts regardless of fiscal and economic circumstances.
Donald Trump’s calls for tax cuts were common for a Republican president but were exceptionally large for a growing economy facing large deficits. Singing from the classic antitax songbook, Trump insisted his tax cuts would not add to federal deficits or debt.
Trump claimed publicly that his tax plan would raise the taxes of wealthy people such as himself, while privately assuring his rich friends that he would lower their taxes. When he revealed his actual tax plan after taking office, neither economists nor the general public were enthusiastic. Since the Republicans now held majorities in both houses of Congress, he could pass it entirely without Democratic votes, and he did. The Tax Cuts and Jobs Act of 2017 cut both personal and corporate taxes. It also doubled the amounts exempt from estate taxes. The bill held down the projected cost by making the personal tax cuts “temporary” (from 2018 to 2025), but Republicans were confident that a future administration would be compelled to continue them. Wealthy taxpayers got the largest cuts, both in absolute dollars and as a percentage of income. The top bracket rate was cut from 39.6% to 37%.
President Trump tried to create American jobs by putting tariffs on certain imported goods, especially from China. These had two downsides that made them unpopular with economists: Importers passed along their increased costs to consumers; and China retaliated with tariffs on our agricultural exports. “Trade experts estimated the steel and aluminum tariffs cost American consumers and businesses about $900,000 for every job they saved or created.”
Under Trump, the deficit increased from 3.1 percent of GDP in 2016 to 4.6 percent in 2019. That was before a new national economic crisis induced a new spurt in federal spending. This time it was the Covid epidemic, which brought much of the country’s economic activity to a halt.
Biden—tax benefits for the non-rich
Like Obama before him, Biden inherited a distressed economy, which he tried to stimulate with both tax rebates and new spending.
With narrow control of both houses of Congress, Democrats managed to pass the American Rescue Plan Act of 2021. It contained new spending to fight Covid, especially to fund vaccinations. It also included tax credits, 70% of which went to families with less than $91,000 of income. It raised the child tax credit from $2,000 to $3,600 for each child under six, and to $3,000 for older children. Congressional Republicans, who for forty years had rarely met a tax cut they didn’t like, unanimously opposed this bill.
The Inflation Reduction Act of 2022 also passed without any Republican support. Its main goals were to promote clean energy production and hold down the costs of health care and health insurance. It was funded mainly with a 15 percent minimum tax on corporations (aimed at corporations that had been paying little or no taxes at all), and additional revenue expected from an increase in IRS funding. (Better enforcement of the tax code with more agents and auditing normally brings in more money than it costs.) Republicans especially hated the IRS funding, and tried unsuccessfully to repeal it.
Biden wanted to raise taxes on the wealthy, but never succeeded in doing so. The deficit spiked to 12.1% of GDP in 2021, but went down to 5.3 percent after the American Rescue Plan’s temporary spending and tax credits ended. As of now, expenditures have exceeded revenue every year since 2001.
In my last post on this book, I will offer some reflections on what the antitax movement of the last half century has accomplished, and what it has meant for the country.
Beneath the Surface 