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Repeal Bush’s Tax Cuts

The U.S. simply cannot continue to function highly without a greater stream of revenue. Pro or con?

Update! Podcast: Hear writers Byron Schlomach and David Kiley respond to your reader comments

Pro: Trickle Down Doesn’t Work

The Bush tax cuts enacted in 2001 and 2003 were classic supply-side trickle-down economic theory. Give wealthy people more capital by way of tax relief, and they will create economic prosperity for all.

The holes in that theory? It would become more difficult to fund an expensive war. Enormous deficits matter to long-range economic health. Government spending, exacerbated by the war, was not curbed. And the wealthy don’t always use money the way you hope.

If the Bush cuts are rolled back, as Barack Obama suggests, the 0%-to-15% capital gains rate would revert to 20%. Obama would restore the 36% and 39.6% income tax rates, while the wealthiest would also pay the highest capital-gains and dividend taxes. Middle and lower-income taxpayers would still benefit from lower taxes and get relief in other ways, too. Opponents say such moves will hurt the economy.

We needn’t go far back in history to see that such cynicism is empty rhetoric. In 1993, the federal deficit exceeded $300 billion a year. Bill Clinton and Congress raised taxes and slashed spending. The effect: The deficits that had ballooned under Reagan and Bush 41 were tamed, and we had economic expansion, job creation, a stock boom, and a budget surplus when Clinton left office.

Now median wages and benefits, adjusted for inflation, are going nowhere. Health care costs are rising more than 10% a year, and employees must pay more of them since we have no national health care. Since Bush has been in office, new wealth has been concentrated in the wealthiest 1%. Hedge fund billionaires pay a lower tax rate than I do. Before the housing bubble burst, there was job creation. But it was not so much due to the tax cuts but rather consumer spending financed by home equity—expansion funded on the equivalent of credit cards.

Taxing the wealthiest Americans at the rates of the 1990s is not about socialistic income redistribution. It’s about the country having enough money to do the business of the people: defense, health care, decent schools, infrastructure, and Social Security. It’s not “Morning in America” time. It’s “Eat Our Spinach” time in America.

Con: Tax Cuts Mean Opportunity

Every Presidential election year, candidates roll out tax plans aimed at wooing voters. This year, one of the debates is whether the Bush tax cuts should be made permanent.

The 2003 tax cuts simplified income tax brackets and slightly lowered rates. Consequently, the income tax’s penalty on work, investment, and innovation was reduced. Eliminating these cuts would be poor economic policy, poor tax policy, and poor social policy.

The long-term capital gains tax rate, now 15%—which will revert to 20% in 2011 if the tax cuts are not made permanent—makes us competitive internationally. This increase would raise the tax on investment gains by a third, increasing the tax from about the world average to one of the world’s highest. This is hardly a formula for domestic investment in job growth.

But these tax cuts don’t just help investors. Families would also see their taxes increase. Half of current child tax credits would disappear, dropping from $1,000 per child to $500. Grandparents could pass on less to their grandchildren, too, because death taxes would also rise.

The federal deficit is certainly a problem, but the culprit is federal spending, not tax rates. Spending is growing twice as fast as the government’s bank account, and twice as fast as it needs to provide services for our growing population. From 2001 to 2008, federal outlays increased at an average annual rate of 3.6%, three times the rate of population growth. And contrary to what some argue, tax revenues did not dry up but rather increased over that period at an average annual rate of 1.4%. The problem isn’t too little revenue but too much spending.

Congress rarely practices spending restraint for the sake of reducing the national debt. Nevertheless, that’s exactly what we need.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek,, or The McGraw-Hill Companies. Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek,, or The McGraw-Hill Companies.

Reader Comments

Last Iconoclast

What tax cuts? The alternative minimum tax took away any benefit that I was supposed to have enjoyed from those tax cuts. What we need is tax reform, and not more BS from politicians who promise tax cuts or tax increases.


Ain't that the truth, Iconoclast?

That's all we've been hearing/seeing for the past 24-plus years with the same dismal results--just pure bull.

james M. Anderson

You must writing this article to be heckled. Every level of government has frittered away its largesse during this past five years, with the Feds being the leader. I drive by the local Homeland Security facility, which is on the water (expensive) and has brand new 35-foot boats with maxed out electronics and outboard motors. And they drive large SUVs with lights and crap all over them. They are wasting our money, and the only time I see them doing anything is when they wash the boats. We need to restrict funding, not increase it, at all governmental levels.


America cannot have its cake and eat it, too. If we don't sensibly repeal the village idiot's tax cut, soon we will have to convene a debtors' convention to ask for debt forgiveness for America.

Wake up America, when we still have time.

burdened by tax

There is a proverb from India that translates to "Don't stretch your legs beyond the bed." What we need is for our drunken sailor government to close the barn door and clean up the mess before promising the moon to the electorate again. Enforce the current tax code (with its thousands of loopholes) and catch the ultra-wealthy hedge fund guys and farmers with thousand-acre ranches who are paying peanuts for taxes. Stop bothering salaried folks who cough up the tax every month.


You are the village idiot if you think we can tax our way out of this. We need to cut spending at all levels of government, as it has grown far faster than GDP for many years.

Gerald E Reilly

What do you expect from a vast criminal enterprise that is the federal government? The only difference between all the bureaucrats and the Mafia is the Mafia has an honor code. No increase in taxes until all the waste and pork is eliminated. Why do we subsidize farmers who have huge demands for their product? Why are we not drilling all over the place? I think it's OPEC funding all the environmental wackos who block everything. When will the working stiffs of this country fire another shot heard 'round the world?


Tax cuts? What about reducing our involvement in the war? Put the $11 billion per month to use. Are we so blind that we can't see where the real expenditures are? Tax cuts are like black-topping a cow path. Open your eyes and look around.


Congress needs to close the tax loopholes, tax private equity and hedge fund managers at ordinary income, upgrade its software, and conduct on-site audits of small businesses. Also allow citizens to report tax cheats. It hurts to pay large dollar amounts in tax because of limited deductions when neighbors are living the high life because they pass every personal expense through their business.

One group cannot continue to not pay their fair share of taxes at the expense of other taxpayers--the wage earning middle class.

We are broke and need to collect every dollar that we are rightfully owed.

Paul C. Hanna

Over the last 80 years, I have seen this country move from a nation of can-doers to the largest group of self-interest seekers ever seen.

Yesterday, our local government (which now seems to include four out of every ten of these something-for-me people) announced we have conserved so much water that they were going to have to raise the water rates so they would not lose any revenue.

My message is the less government we have, the better off we will all be.

J. Sacrimoni

On The Sopranos TV show, they talk about having "no work" and "no show" jobs. I have seen this happen first hand with the federal government. Government agencies vie for their piece of the pie every year with a budget. If an agency asks for $2 million but only spends $1 million, next year they receive reduced funding (and in essence are penalized). Naturally, everyone overestimates their budget. Then at the end of the year people scramble to spend remaining money, sometimes literally giving "no show," "no work" contracts in order to protect next year's funding stream. I say this not from experience, but because I am jealous I didn't get one.

Aramis Jordan

I am against getting rid of the tax incentives.

I am for simplification. Small-business owners like me not only have to deal with worthless paperwork at the local and state level, but also the ever increasing portion of our federal taxes is a burden.

It reminds me of commissions structures put out by corporations that require the hiring and development of an entire group of people, and at the end, the salespeople, the ones responsible for bringing in the revenue, get discouraged because they do not understand it.

Make it simple. If I make you a dollar, tell me what I make out of that dollar, nothing more, nothing less. True salespeople are driven by that simple equation; it allows them to plan and set goals.

The same can be said for our tax system--no one understands it, including the IRS itself that often must rely on judges to figure out what was meant by our so-called leaders.

Tell me if I make a dollar, how much you need from me to give me the services you need to provide me under our Constitution, and please note it's not to keep accountants, attorneys, and the IRS in business.


If our tax dollars were used in this country instead of for nation-building, we'd be able to afford the tax cuts. Get rid of the IRS and the Federal Reserve Bank.


Government should spend for the common defense, to include control of borders, maintain oversight on interstate commerce for the overall good, and sadly, as states won't do it, probably oversight of commodities so they are spread equitably. Notice what isn't in that list? I'd say about half of the government we have today. Eliminate that half, and the government would be running a surplus, and the tax cuts could stay in place.


Figure it out, people. Top taxpayers are paying more than 60% in taxes with federal, state, local, Social Security, and Medicare. When is enough enough? The only people who want them repealed are do-gooders or those who don't pay, and live off the rest of us. Which one are you?


That's right, all you socialists out there. Let's give money to uneducated people with minimal skills and raise taxes on those who have the skills to make the money. Brilliant. Let's drill for oil so we are not dependent on people who hate us. Let's not keep supporting people, inside and outside this country, who do nothing but look for handouts. Why should I get taxed more so someone who doesn't work should get more? This is the land of opportunity, not of guaranteed paydays for those who do not put forth the effort.


We must raise taxes and cut spending, but we have to do it gradually over a couple of years and according to a defined timeline so people can plan.

Reducing spending includes getting out of stupid wars, removing incentives for government departments to spend to get next year's budget, eliminating stupid government initiatives that are doomed to failure--like the Arabic news channel run by the U.S. government.

Increasing taxes includes enforcing current codes, closing loopholes, simplifying tax laws, and increasing tax rates across the board and especially on those who can easily afford it. But we must get our deficit spending under control immediately.

Raising taxes to promote economic develop should be encouraged--medical advancements, clean fuel advancements, etc. But we do need to make sure the money is being spent wisely. Raising taxes to pay teachers, cops, and firefighters a decent salary should be encouraged. Raising taxes to build a new air traffic control system, bridges, and highways should be encouraged. Raising taxes to build better parks and providing for a cleaner environment should be encouraged. This type of spending goes directly back into the economy and gets spent much more effectively and predictably than a tax break to a wealthy individual who doesn't really need the extra money. This type of spending also lowers unemployment and crime as more people become an active part of our society.

Another source of income for the government should be entering selected industries where heavy regulation is required. Privatization is fine, but not where it creates a monopoly that is almost impossible to regulate. The best form of regulation is competition, and why can't that competition come from a government-sponsored organization? For example, why not have some government-owned electrical-power generating facilities that are capable of selling into our power grid. This would force other facilities to be comparably efficient and greatly reduce the costs of trying to regulate monopolistic scenarios. Why not have a government home-building company that builds and sells homes slightly above cost. That generates money for the government, provides jobs, provides better home ownership opportunity, and forces builders to be more controlled and not create huge bubbles as the government houses would be sold more based on costs than demand. The government is successful in business in many areas--like the postal system, Fannie Mae, areas where it makes sense. Government needs to not be viewed as evil. Waste, however, does need to be viewed as evil.

We are all on the same team and need to stop being so selfish. That doesn't mean that I want lazy people to have a free ride, but I am willing to find work that needs to be done to allow all a chance to contribute.


There are no really good arguments for raising taxes--the U.S. got along just fine for 150 years with no income taxes, financing the government with tariffs and duties on trade. Since then, U.S. citizens have been obliged to watch as the federal and state governments have raised trillions of dollars, only to squander most revenues on tea tasters, bogus research grants, and bribes for the indigent. Enough already: Name one thing government handles better than private business --okay, war. End of list.


It doesn't make any difference as long as the Federal Reserve has control of the value of the dollar by arbitrarily adjusting interest rates. Unless the dollar is tied to a real value (e.g., gold), it will continue to depreciate to parity with the yuan.


Socialists. Funny you should mention that, because so-called socialist Europe from the Netherlands to Sweden to Germany is actually doing pretty well, and uses its tax money for a good public system. The European stability pact limits budget deficits to 3%. Not bad for a "socialist system," right? People still have money and spend it on vacations, shopping, etc. The economy is growing, and in countries such as Holland, the unemployment is only 2% to 3% in the last 10 years with a short peak to 5%.

I am not saying socialism is right. I don't even think Europe is socialist, but I do think that endlessly lowering taxes and then spending all your money in Iraq is going to destroy you. How come it's okay to spend money in Iraq for roads, schools, security, and hospitals but not in your own country? Then you suddenly call it socialism? In Iraq you call it anti-terrorism = national security? Are you guys kidding me?


Sure, if you take more money from workers (of all types), you can use it to pay down debt. But isn't the point that we shouldn't run deficits anyway? I posit that we do this because we accept and/or compromise lots of what we shouldn't. In other words, we're political cowards. Neither Obama nor McCain can solve this. They'll just follow the polls as they decide. And we, the affected people will never say enough.


Those who would like low taxes for the wealthy need to prove that that benefits the rest of the nation. Just saying so isn't convincing.

If they could make a credible, evidence-based case for easing taxes on the rich as a means of fostering a thriving economy, I'm on their side. In recent history, we have lowered taxes on the rich, and sometimes the economy has improved. But the economy has improved after we raised their taxes as well.

There may be no substantial relationship between taxation and the economy.


Government waste cannot be used logically as an argument to justify continued reduction of the taxation of the rich. An efficient government will still need to tax its citizenry.


This is a parlor trick question: to tax or not tax. The real question is who is best at allocating and deploying limited U.S. resources that provide the highest productivity gains that further U.S. economic well being.


Bravo, Jack. Government waste is not a reason to get rid of government and taxes. It's a reason to get rid of those in the government who are creating the waste and not using taxpayer money wisely. As Jack wisely states, even an efficient government will still need to tax its citizens.

David G.

There are some pundits like Limabaugh who would like to persuade you that government serves no purpose. But he falls into the category of rich where it is true that some government tends to be a burden rather that an asset.

Generally government functions help most of the people of our country to have a safer and better quality of life. The wealthy are not as concerned with the value-added aspects of government. They can afford to hire and take care of their own needs including security, health, transportation via private carrier, gated communities, taste testers, etc.

It's the average person who benefits most from government programs.

When government functions are privatized, it always leads to corruption and cronyism between the government contract managers and the private organization that they ostensibly run.


Poor people are not taxed at all. What is that all about? If people don't pay anything, they don't share in the pain. Everyone should pay something. The Roman Empire fell apart when the taxed minority rebelled and simply stopped paying. We are headed down the same path.


It is simple:

The first $25k everyone earns is tax free. All the rest is taxed at 15%. Then, spending is only allowed to be 80% of collected revenue until the debt is paid off.

Accounting becomes clear and easy--no more games or waste on the printing of books and tax forms.

No outs. No corporate deductions - no bonus deductions.

This will mean kids have to learn in schools that are not brand new every three years.

No more bridges to nowhere.

No farm subsidies to not grow food.

No free housing/food for those able but unwilling or uninterested in working.

No more bundled giveaway programs to anyone--including foreign aid. Tough love makes for independent kids, adults, and countries. Sometimes even if it is a great idea or gadget, it is just not in the budget.

Yankee Skeptic

The federal government needs to be made smaller and more efficient. Keeping federal income taxes low puts the squeeze on Congress and the Whitehouse to set spending priorities.

Let the role of local and state government expand as needed. They can decide what services are important and what taxes are required, much better than Washington DC.

Also, the individual voter can have far more influence on local and state government than federal.


Yes and no.

Bill Clinton and the Democrats did not slash spending; they just raised your taxes. Bill Clinton and the 1994 Republicans cut spending. However, the problems we are facing are relating to primarily creating money from debt and too much government spending into the health care system via Medicare and Medicaid. Our fractional reserve banking system lies at the core of current problems. Creating liquidity (ie: money) through debt is how modern economic expansions work. Until the Federal Reserve Bank is restructured, expect more of the same, although in a different form. The system needs debt (and government debt is the best due to its taxing ability) in order to continue to provide liquidity to the system. It is a nasty Catch-22, but a few bankers are making a killing on the U.S. national debt plus U.S. consumer debt. Health care costs are driven up by the government's paying medical bills. Ask a medical professional who practiced in the 1950s what costs were like before the "Great Society" was introduced, and of course the excesses are financed by debt.


This country needs a major tax overhaul. We need to cut taxes much, much more than the Bush tax cuts ever did. Tax cuts spur growth in business, which in turn, creates more jobs and allows the worker bees to keep more of their hard-earned income. Also, the middle class can get ahead by being able to work second jobs or working more overtime hours and keep more of that earned pay. Get the low income people out of the home and into a job so they can become productive citizens rather than leeches waiting for that next government handout check. I say cut taxes drastically, throw out the IRS all together, go to a flat tax or consumption tax system, get rid of the AMT, and watch this economy become great again. As long as we keep taxing people to death so politicians can waste our tax dollars hand-over-fist on stupid wasteful government programs, we can all stay in the poorhouse. McCain has the right idea, but he needs to push for great tax cuts, not just extending the current ones past 2010.


Privatize the profits and socialize. The loss system must end.


The income tax system no longer fits our economy. We need to transition to a transaction-based tax system. Levy a 2% tax on all transactions from buying a soda to banking transactions such as money transfers. There would be no need for income taxes, and states would be free to tax as they needed, but that is easier for the local people to control. Federal revenue would far exceed what it does now and would allow us to pay down debts. Of course, Congressional spending restraint would still need to be addressed.


Viking, you're an idiot. We need to do both. Cut spending and raise taxes on the rich. Like the government used to do under the Clinton Administration.


What right do Jack and Duke have to determine where money I earned is spent? Yes, a portion of my income should go to the "greater good" but not a majority.

And for you Clinton sniffers out there--he rode in on the dot-com bubble and slid out on its diminishing wave. Raising taxes did nothing. Cutting spending and welfare reform on the other hand...

The Fromantarian

My grandfather had a saying: "If your gas tank is empty, you can't fill it by shaving the dog."

Were he alive today, I think he would probably revise it somewhat. Here's a possible revision: "You can't have prosperity with a government that takes more and more of your paycheck" or "You can't balance the budget with a bridge to nowhere."

The bottom line is that throughout the entirety of the history of Western Civilization, not one sane individual has ever concluded that government isn't wasting enough resources and what's needed are compensation-shrinking taxes to address that injustice.

Regrettably, our elected leaders conclude just about the opposite: There can't be enough government waste, and taxes can't ever be high enough to overpay for it.

I don't have all the answers, but as far as I am concerned, our next President should set about cutting taxes as much and as frequently as possible to starve the beast. I won't be happy until Nancy Pelosi's head spins right off (figuratively speaking, of course).


Anyone who talks about deficits only in terms of taxation is nuts--spending has to change as well. U.S. tax revenues have been higher during the Bush years than during Clinton's, but the hole is deeper. We need efficient government and tax reform, not tax increases.

Brian H

The tax-cutters' dilemma:

It seems that cutting taxes increases government revenues, because it enables and attracts more commercial and consumer economic activity, proportionately, than the tax cuts represent, so overall take rises. Hence the tax cutters' dilemma. Such persons and even politicians are trying to reduce the size and impact of government, but the more they cut taxes, the greater the revenue and resources. Since it is not possible not to use those resources (even saving is a form of investment, in others' hands), the impact and power of government is thereby increased.

So it comes down to: Cut taxes or reduce government size; pick one. In order to reduce government's impact, it is necessary to raise taxes until revenue falls to the point that government is cutting back everything in sight in order not to go bankrupt (after a stiff run of deficit spending, granted). So less is more. More is less.

Aren't God's little ironies amusing?

Beatrice Scalise

There is only one tax that is fair for all: the fair tax. The fair tax. All others are stealing from the citizens' pockets so that the politicians can play with our money.

JR Gordon

Do not repeal the tax changes implemented this decade. Do shut down programs of the federal government that are none of their business. Do encourage individual responsibility. We all pay 50% or more of our income to the several levels of government. That is enough.

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