Despite the sky-is-falling partisan opposition during the tax cut debate last year, the passage of time tells a different story. And it discounts the fictitious picture of gloom and doom portrayed last year by the big spenders in Washington.
According to revised economic data released by the federal government in August, the economy started to falter earlier than previously believed. The figures show the economy started negative growth as early as January 2001. This proves the economy needed a shot in the arm sooner rather than later to get things rolling again. What’s more, the primary weakness causing the economy to sputter was lackluster business investment, not waning personal consumption.
Clearly, the job-creating engine in America needed a tune-up. And that’s just what the president set out to do when he took the oath of office. A cornerstone of his campaign for the White House, the president made good on his pledge to return more hard-earned money to the working men and women in America.
As the chairman of the Senate Finance Committee at the time, I had the privilege of steering the largest federal income tax cut in a generation through the Congress. The best way to grow the economy is not by growing government. It’s by allowing the industrious people of the United States to manage their own money.
Reducing marginal tax rates on income and investment was exactly the right policy prescription to cure sluggish business investments and prime the pumps that enable American entrepreneurs, small business owners, manufacturers and corporate employers to grow the economy and create jobs.
Letting workers, investors, entrepreneurs, employers, families and retirees to keep more of their own money unleashes a chain reaction. They’ll spend it. Save it. Invest it. Open a small business. Pay higher wages. Buy a house. Upgrade manufacturing equipment. Pay for higher education. The list goes on and on. It’s a fundamental principle that policy makers need to remember. Money recycled through Washington doesn’t squeeze the most bang out of the buck.
And yet plenty of critics continue to blame the "Republican" tax cut for the federal budget’s shortfalls. Lest they forget, more than one-quarter of the Democratic caucus in the Senate voted for the tax cuts.
In an election year, too many candidates still like to divide the American electorate, pitting the "rich" against everyone else. I’m sure voters will get their fill of statistics claiming that the Bush tax cut hands out 40 percent of the benefit to the top one percent of taxpayers. This is not merely misleading, it’s false. Some folks must be under the impression that as long as something is repeated often enough, it will become true.
The facts certainly are thorny little details for the critics of the bipartisan tax relief package. According to the Joint Committee on Taxation, Congress' official non-partisan scorekeeper, the federal tax code became more progressive with the tax relief package. And taxpayers in the lower to middle income brackets get the biggest break. For example, taxpayers with incomes between $10,000 and $20,000 will see their taxes reduced by almost 14 percent when the tax cut takes full effect. Taxpayers with over $200,000 will see their taxes reduced by barely six percent.
And as for the budget, the bipartisan tax cut was a minimal factor in the federal government’s surplus-to-deficit situation. In its first year, the tax cut accounted for just eight percent of the shortfall. Indeed, increased spending outpaced the tax cut by $6 billion. Over the long-term, the 10-year surplus declines from $5.6 trillion to $300 billion. Of that drop, the tax cut represents 33 percent of the decline, or about $1.7 trillion. Those who are looking to lay blame need to point their fingers at Congress’ appetite for spending.
Folks who decry the tax cut should instead weep with hardworking taxpayers about Uncle Sam’s bite out of their paychecks. The Bush tax cut saved Iowa households $752 on average in its first year. Even with the tax cut, the federal government takes 19 cents out of every dollar earned. That’s a record tax burden higher than any decade since World War II.
Thanks in part to the bipartisan tax cut enacted last summer, things are starting to turn back around. Weaknesses persist in the manufacturing and employment sectors, but the U.S. economy is as resilient as the spirit of the American people. Lowering the tax burden in America triggers growth, creates jobs and spreads economic opportunity. Plus, tax cut opponents need to be reminded that a bigger economic pie will dish up a bigger slice of revenue to fulfill the government’s priorities, including homeland security.
As the top Republican on the Senate tax-writing committee, I will continue championing pro-growth economic policies. That includes making last year’s tax cuts a permanent part of the tax code.