How Much Do You Know About the Bush Tax Cuts andTheir Impact on our Deficit and National Debt?

By Patricia L Johnson

Each year the bipartisan Congressional Budget Office (CBO) completes a projected budget for the next decade.

The CBO projection in 2001 for the 10-year period of 2002 through 2011 indicated budget surpluses totaling $5.6 trillion dollars1  This projection was based on the fact we had three straight years of surpluses; 1998, 1999 and 2000, for the first time since the 1920’s and federal revenues were at a high rate of 20 percent of GDP.  Federal Revenues had been rising for a period of several years due to the tax increases put in place by the Clinton administration.

President George W. Bush and the 107th Congress felt excess taxes should be returned to the taxpayers2 therefore the first, of a series of tax cuts was passed.  H.R. 1836, Economic Growth and Tax Relief Reconciliation Act of 2001, EGTRRA, P.L. 107-16, was signed into law by President George W. Bush on June 7, 2001, with retroactive provisions applying to taxable years after December 31, 2000.

EGTRRA incorporated a group of tax cut bills3 into one and the finished product contained more than 80 different tax cuts and changes to the existing tax rates.  In addition to adding a new 10 percent EGTRRA reduced tax rates in the top four brackets over a period of time:

The tax cuts in EGTRRA were so dramatic that by the time the CBO completed their 10-year projection in January of 2002 [for the period of 2003-2012] the surplus had dropped from $5.6 trillion to $1.6 trillion.  Although the $4 trillion dollar reduction was made up of several items, the major factor affecting this reduction was the EGTRRA tax act alone, reducing the projected surplus by $1.275 trillion dollars.4

Tax cuts effect budget projections in three separate ways.  They reduce the amount of revenues going into the treasury, they increase the amount of outlays, and if there is a deficit they increase the amount of interest to be paid by increasing the deficit, also known as debt service.

How do they increase outlays?  Many tax cuts include what is known as a tax credit, meaning the taxpayer can reduce the amount of taxes owed by the credit, or if no taxes are owed the treasury sends a tax refund to the taxpayer.

Why did this one tax bill have such a major impact on the deficit?  The tentacles of this one tax act stretched far and wide from simple tax rate percentage changes for the average Jane and John Doe to excise tax relief, to changes in tax treatment of restitution payments to Holocaust victims, to major tax loopholes for the ultra-wealthy.

EGTRRA contains nine major sections as follows:


Due to the fact this particular tax bill was deficit financed; this one bill alone added an estimated $1.4 trillion dollars to the deficit [the difference between the $1.275 deficit estimated indicated by the Congressional Budget Office and the $1.352 deficit indicated by the Joint Commission on Taxation is the different time periods].

When a tax law is enacted it goes into effect on a specific date and it may or, may not, have an expiration date.  EGTRRA had expiration dates, but were extended as part of the agreement on increasing the debt limit.  As a result of these extensions, EGTRRA continues to add to the national debt each and every day and this law is just one of many.  During the 107th Congress [January 2001-January 2003] alone there were more than 10 different bills passed affecting our tax laws, our budget deficit and subsequently our national debt.

Understanding the impact these laws have on our lives is difficult at best, due to the complexity of the issue, and the fact these taxes went into effect over a decade ago.

The following chart is based on estimated deficit data from the Joint Commission of Taxation estimates for the period of 2001 through 2012, based on implementation of EGTRRA.  Please note that the highest revenue deficit was estimated to be in 2010, two full years after Bush left office, and a full nine years after the implementation of EGTRRA.

We already know that EGTRRA was estimated to increase the budget deficit by $1.4 based on the report by the Joint Commission on Taxation.  The $1.4 trillion is broken down as follows; the deficit increased by $864 billion from the period of 2001-2008 and by $488 billion from the period of 2009 – 2012.

In other words, when Congress passed this law back in 2001, they knew a few things, first that one of the provisions would not even become effective until 2010, second that it would continue to increase the deficit long after President Bush left office, and third that if the tax expiration dates were ever extended; EGTRRA would continue to create deficits indefinitely.

© Patricia L Johnson

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5 Responses to How Much Do You Know About the Bush Tax Cuts andTheir Impact on our Deficit and National Debt?

  1. Paris Watson says:

    Again you avoid answering the question “are you part of the corruption, or are you just ignorant of what is happening”?
    You also have trouble with someone who challenges your point of view. You better get ready because there are alot of us out here that do not agree with you. and we vote.

  2. Administrator says:

    LOL – under normal circumstances I would have to agree with you 100%. If you are in power you should be aware of what damage is being done. When the damage is due to a mountain of events, rather than a molehill, it’s a little difficult to keep track.

    There were a minimum of nine different factors that had an effect on the economics of this country; the two unpaid for wars in Iraq and Afghanistan, begun by the Bush administration, the various tax bills put into place by the Bush administration, the failure of the Bush administration to allow Medicare to negotiate the cost of pharmaceuticals when Medicare Part D was put into place, the two recessions begun during the Bush administration, etc., etc., etc.

    I’m not sure if you’re talking about me and/or the Obama administration with the statement “to deny this is what I see as incompetence”, in either case, I disagree.

    It’s difficult to control damage that hasn’t happened yet, as in the case of the 2010 deficit, as I mentioned earlier that particular provision in EGTRRA did not go into effect until January of 2010 so the full effect was not known until after income taxes were filed in April of 2011; however since the Obama administration is ‘in control’, changes to that particular tax loophole were included in the negotiated bill passed in December of 2010.

    Am sorry to hear that you’re “sooo looking forward to 1012” because 1012 came and went many decades ago.

    Once again you are making an assumption “you need to read the book”. What is the basis for your assumption that I have not read that particular book?

    There’s no need to answer the question because I will not be corresponding further.

    Pat Johnson

  3. Paris Watson says:

    You people are scary. It is your job to be aware of what damage is being done to our economy while you are in power. To deny this is what I see as incompetence. I am sooo looking forward to 1012.
    You need to read the book “Throw them all out” by Peter Schweitzer. This is a sentiment that is growing stronger as people see a totally corrupt government on both sides of the isle.
    Where do you fit? Are you part of the corruption or are you just ignorant of what is happening?

  4. Paris Watson says:

    It is amazing that you are still blaming the previous adminestration for Obamas incompetence. Obama and the Democratic party had control of both houses and had an opportunity to correct the situation (like repeal the tax) but for some reason chose to do nothing. They even extended the tax. If it was so bad, can youi explain why it was extended?

    • Administrator says:

      Paris,

      There’s nothing “amazing” about it – actually it’s quite simple. I fully intend to blame the previous administration for the complete and total economic disaster this country is in, until such time as someone proves to me that the Bush tax cuts are not the cause.

      Yes, the Democratic Party was in control for a period of time and did have the opportunity to repeal the tax. The reason they didn’t is because the full extent of the damage from the numerous tax cut bills put in place during 2001 through 2008 was not known while the Democrats were in control of the House/Senate and White House. If you read my article, you know the biggest deficit, caused by the one bill alone, EGTRRA, was not known until FY2010 as one of the provisions did not go into effect until FY2010. You can’t very well repeal what you don’t know about.

      The reason the tax cuts were extended is basically due to negotiations or in the case of this Congress – the correct word is “blackmail”. The Dems had to compromise in order to get a 13-month extension on unemployment benefits for those folks that were out of work. This was right before Christmas of last year – the GOP was more than happy to cut off unemployment benefits to anyone and everyone if they couldn’t get an extension on their tax cuts. Obviously the negotiations didn’t just cover unemployment, it also provided for a reduction in FICA taxes, an extension of the Child Tax Credit, and a patch to the AMT, etc., as well as extending the tax cuts.
      Seems as if we’ve had this conversation before about the tax cuts and the fact is you don’t believe the Bush tax cuts created the problem. When the CBO estimated would cost in lost revenues from 2011 through 2020 by extending the Bush tax cuts, they came up with a $2.65 trillion, which would cause a total of $3.3 trillion to be added to the national debt, due to the added interest and debt service costs.

      If you haven’t read our article you might want to look at it as it will provide you with more insight of where I’m coming from on the subject.

      Thank you for your comment,

      Pat Johnson

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