The president's fourth tax cut -- signed by Mr. Bush on Oct. 4, 2004 -- revived a debate over tax policy first prompted by the 2001 bill. Moderate Republicans and Democrats, among others, have warned of the deleterious effects of the widening budget deficit.
Echoing the sentiments of other moderate Republicans, such as Sens. Susan Collins and Olympia Snowe of Maine and George Voinovich of Ohio, Sen. John McCain of Arizona said he would vote in favor of the "family tax relief provisions," but strongly cautioned the president that the mounting budget deficit will "leave future generations with a reckless and unjust financial burden."
"We're tying a millstone of debt around their necks, and it is a grave mistake," McCain said on the Senate floor on Sept. 23, 2004.
Many Democrats and social organizations have also complained that the president's tax cuts disproportionately favor the wealthy and do not do enough for lower-income families.
Following Congress' approval of the fourth tax cut, Rep. Charles B. Rangel of New York, the senior Democrat on the House Ways and Means committee, told the Los Angeles Times: "When it comes to tax cuts for those making more than a million a year, the Republicans say that they're worth piling up more debt. ... But when it comes to providing a little bit of tax relief for working families with children, the Republicans say that we can't afford it."
Despite such complaints and criticisms, supporters claim the president's tax cuts were necessary to spur economic growth, whose effects would ultimately benefit lower income workers and even out the record deficit.
"Ever since the Bush tax cut took effect, the stock market has risen 25 percent, the economy has produced 500,000 new jobs, the economic-growth rate has doubled, and business investment has hit a ten-year high," wrote Stephen Moore, president of the pro-tax cut organization Club for Growth, in the National Review Online magazine in January 2004.
One of the more controversial aspects of President Bush's 2003 tax plan was the dividend tax cut. Tax experts, such as Clint Stretch, the tax policy director for Deloitte & Touche, told the NewsHour that it was a departure from traditional U.S. fiscal policy to implement a lower rate on dividend income.
Democrats, moderate Republicans and several prominent businessmen argued that reducing taxes on dividends would unfairly benefit the wealthy and do little to heal the ailing economy, while many economists and investors argued in favor of eliminating the dividend tax -- the so-called "double taxation of dividends" because dividends represent company profits that are already taxed.
In May 2003, Berkshire Hathaway Chairman Warren Buffet, known as the "Oracle from Omaha" for his stock picking prescience, criticized the president's dividend tax cut as "voodoo economics" that used "Enron-style accounting." The president's plan would "further tilt the tax scales toward the rich," Buffett wrote in his May 20, 2003 opinion piece in The Washington Post. Buffet has since joined the Kerry campaign as an unpaid economic adviser.
Meanwhile, Federal Reserve Chairman Alan Greenspan in February 2003 spoke warmly of eliminating taxes on most stock dividends, saying it would "almost surely increase the aggregate of economic activity" over the long term.
A number of supply-side advocates -- or those in favor of marginal tax rates -- have praised the Bush administration for its innovative and "Reaganite" approach to the nation's convoluted and complicated tax code -- through measures such as the dividend tax cut.
"Cutting the capital-gains tax, cutting the dividend tax, lowering tax rates, increasing tax deductions for business investment, is a big leap forward toward tax reform. George Bush is giving us tax reform one bite at a time," Stephen Moore wrote in his Jan. 2004 article.
Indeed, the Bush campaign over the summer has hinted the president is considering a more comprehensive reform, including a "flat consumption" tax that would shift the tax burden from savings and investment to wages and spending.
Several dozen significant federal tax bills have been enacted between the end of World War II and August 2004, according to the U.S. Treasury Department. Three of them -- not counting the most recent cut passed by Congress in September 2004 -- have been passed during the Bush administration.
Compared to previous administrations since 1950, President Bush stands out as one of the top tax-slashing presidents.
President Reagan's 1981 tax cut ranks as the largest, relative to the size of the national income, in modern history -- far ahead of any of President Bush's single tax cuts. On the other hand, Reagan reversed roughly one-third of this massive tax cut with two increases in 1982 and 1983. The 1982 Tax Equity and Fiscal Responsibility Act represents the largest tax increase in recent history, slightly larger than President Clinton's 1993 Omnibus Reconciliation Act.
said, the total of President Bush's three tax cuts, as relative to the size of
the economy, is nearly as large as Reagan's 1981 cut as reduced by TEFRA, according
to a study by the Treasury Department and the liberal Center for Budget and Policy
In fact, Reagan's 1981 Economic Recovery Tax Act is recognized as the most significant tax policy change in modern history. The bill significantly reduced the marginal income tax by roughly 25 percent over a three-year period, lowering the top rate from 70 percent to 50 percent, the bottom from 14 percent to 11 percent.
Critics blame this tax cut for heavily contributing to the federal deficits during the 1980s and 1990s, while others praise Reagan's tax reform for fomenting the 1980s economic recovery. Though this debate is far from settled, "Reaganomics" continues to inspire President Bush and other "supply-side" advocates on tax policy.
The issue of tax reform extends beyond economics. Tax policies have been credited for helping to sink or secure a presidential election. Most recently, many pundits, such as Larry Kudlow at National Review, say former President George H. W. Bush capsized his 1992 reelection bid after he reneged on his 1989 campaign pledge, "Read my lips -- No New Taxes."
But tax policy is a relatively new instrument of the federal government. Prior to World War II, only about 15 percent of American workers paid income tax, according to tax historian John Witte. That changed in 1942 with a series of tax increases intended to boost government revenues during wartime. After President Franklin Roosevelt's Revenue Act and the Current Tax Payment Act -- which first enacted tax withholdings from worker wages -- roughly 80 percent of families were paying income tax by the end of the war.
the late 1940s until 1967, most discussions about taxes occurred during wartime.
The government imposed several hefty tax increases in 1950 and 1951 to help pay
for the Korean War and passed the Tax Adjustment Act in 1966 to help cover costs
of the Vietnam War, according to a study by Jerry Tempalski of the Treasury Department's
Office of Tax Analysis.
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