Many conservative economists try to shift the blame of the tepid economic growth onto the regulatory and tax policies of the Obama era. However, these regulatory policies were necessary following the reckless and dangerous deregulatory effects of Bush-era tax reform.
Though George W. Bush pushed for and received cuts lowering the marginal tax rates of almost all taxpayers, the CBO determined that the cuts added approximately $1.5 trillion of debt from their implementation to 2011. Paul Krugman stated, “It’s useful to bear in mind that estimates of the size of the Bush tax cuts put them at about 2 percent of GDP The actual fall in revenue as a share of GDP was much larger than that. Even now, revenue is about 3 percent of GDP below its peak.”
Although the cuts were supposed to increase the growth of the U.S. economy, clearly, the cost of nearly 3 percent of the U.S. GDP shows that cuts themselves do not provide much good. Inflation-adjusted median weekly earnings in the U.S. fell by over 2.3 percent during the economic expansion of 2002-2007, which has been an unrivaled amount since World War II.
The passage of the Bush tax cuts is also widely believed to have exacerbated the massive economic inequality we face today. Over 38 percent of the tax cuts benefited the top 1 percent of earners in the country, with the bottom 60 percent receiving less than 20 percent of the benefits. Looking to cut taxes without regard for economic policy is a disastrous move.
Tax policies put in place should serve to benefit most Americans, not the ones with the most. In order to establish a strong country, we should ensure that our tax policy bridges the gap in income, not reinforce it. In order to do this, one of the best economic policies to look towards is that of President Bill Clinton.
President Clinton oversaw the restructuring of the tax system to what we have now. He created a new tax bracket for the richest Americans: 39.6 percent tax above $250,000. He also created and expanded policies such as the Earned Income Tax Credit. This refundable tax credit for low income individuals with children provides a livable income without raising the minimum wage to an amount designed to sustain an entire family.
During his tenure as President, Bill Clinton saw budget surpluses in 1998, 1999, 2000 and 2001. Clinton also saw a reduction in public debt to GDP, the primary measurement tool of federal debt: 14.2 percent from 1993-2000. He, too, was responsible for a decrease in federal spending by 3.1 percent of the GDP in the same time frame.
The answer to tax reform isn’t flashy tax cuts but, rather, intelligent policies and smart growth over time.