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Bush Tax Cuts: Economic Growth vs. Fiscal Sustainability

Posted By Barry Ritholtz On October 30, 2010 @ 2:30 pm In Taxes and Policy | Comments Disabled

The nonpartisan Congressional Research Service prepared a report for Congress on the impact of the Bush Tax Cuts on the economy.

The report notes the various options of keeping some all or none of the cuts; the impact of these choices is the balance between fostering economic growth and restoring fiscal sustainability. (You can see the full CRS report here [1]).

First, a definition: What exactly are the tax provisions of Bush Tax Cuts (EGTRRA and JGTRRA):

The Bush Tax Cuts
• The 10% tax rate was introduced;
• The 28% rate was reduced to 25%
• The 31% rate was reduced to 28%
• The 36% rate was reduced to 33%
• The 39.6% rate was reduced to 35%
• Long-term capital gains tax rate was reduced from 20% to 15%;
• Qualified dividends were taxed at 15% rather than as ordinary income;
• The “marriage penalty” was reduced by increasing the standard deduction for couples;
• Child tax credit, the earned income tax credit (EITC), and education incentives were expanded.
• Repeal of the personal exemption phaseout (PEP) and the limitation on
itemized deduction (Pease) (both were gradually phased out)

I cannot quantify the last three, but the others — the tax brackets, cap gains and dividends — are easy to understand.

Here are several visual depictions of the circumstances from and impact of these taxes:

>

click for ginormous charts

[2]

[3]

[4]

You should read the full CRS report [5], as its quite informative . . .

Hat tip Bruce Bartlett [6]


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2010/10/bush-tax-cuts-economic-growth-vs-fiscal-sustainability/

URLs in this post:

[1] report here: http://www.ritholtz.com/blog/2010/10/congressional-research-service-the-bush-tax-cuts-and-the-economy/

[2] Image: http://www.ritholtz.com/blog/wp-content/uploads/2010/10/Deficit-percent.png

[3] Image: http://www.ritholtz.com/blog/wp-content/uploads/2010/10/public-debt.png

[4] Image: http://www.ritholtz.com/blog/wp-content/uploads/2010/10/Deficit-percent1.png

[5] CRS report: http://www.ritholtz.com/blog../2010/10/congressional-research-service-the-bush-tax-cuts-and-the-economy/

[6] Bruce Bartlett: http://capitalgainsandgames.com/

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