This month marks the tenth year anniversary of the first of George W. Bush’s three general tax cuts, passed between 2001-2003, which reduced taxes by a total of $3.4 trillion over the decade, 2001-2010. These general cuts were followed by a series of additional $1.1 trillion industry-specific tax cuts in 2004-2006 that, together with the 2001-2003 cuts, would raise the total Bush era tax cuts to approximately $4.5 trillion.
Various studies during the last decade estimated that 80% of the $3.4 trillion in general tax cuts–$2.7 trillion–were distributed to the top 20% richest households, and most of that to the wealthiest 1%. Thus, conservatively, together with the $1.1 trillion enacted specifically for businesses, a total of about $3.8 trillion in tax cut income were distributed to corporations, investors and the wealthiest households during the Bush years.
That $3.8 trillion is just about equal to the total growth under Bush in the federal government debt between 2000-2008. Bush entered office in 2001 with a federal debt of about $5.6 trillion and left it with approximately $9.5 trillion. The federal debt has since risen to $14.3 trillion, due to continuing costs of war and defense spending, falling tax revenues due to the current recession, direct bailouts, and the continuing negative impact of health care costs on Medicare and Medicaid.
So where has all that $3.8 trillion in tax cut money gone, one might ask? To expand jobs? No. Today there are fewer jobs in the U.S. than there were when Bush came into office. Workers’ wages? No. Real wages are lower today than a decade ago.
A good deal of it went into Hedge Funds, Private Equity Funds, and other forms of private, unregulated banking—thus stoking the fires of speculative investment during the Bush years in subprime mortgages, derivatives and other unregulated financial securities that produced the financial collapse of 2007-08 and which, in turn, provoked the current recession.
Another significant part of the trillions was redirected by corporations and wealthy investors into investing in emerging markets, like China, India and Brazil, in lieu of what might have otherwise been investing in job creating projects here in the U.S.
Still other amounts were simply diverted by institutional investors and corporations alike into offshore tax shelters. According to the investment bank, Morgan Stanley, in 2005 offshore tax shelters had increased their investible assets from only $250 billion in 1983 to more than $5 trillion by 2004. More recent estimations by the Tax Justice Network indicate tax shelters now hold more than $11 trillion. Of course those are global numbers. But a reasonable estimate is that wealthy Americans likely account for at least 40% of that total.
Exactly how much of the Bush tax cuts for the rich and their corporations was redirected offshore into tax havens is not precisely knowable, since there are around 27 offshore tax shelters, according to the IRS, in mostly sovereign nations like the Cayman Islands, the Seyschells, Isle of Man, Vanuatu and the like which have closed their tax doors and do not cooperate with IRS attempts to investigate how much wealthy US taxpayers have stuffed away in their electronic vaults. When Obama first came into office, an initial attempt was made to identify the tax avoiders. But that effort by the administration was quickly downgraded as Obama moved to court business allies more aggressively in 2010.
Like individual and institutional investors, multinational corporations also redirected a good part of their share of tax savings to their offshore subsidiaries in order to avoid paying taxes to Uncle Sam. In 2004 it was estimated about $700 billion was hidden offshore in this manner. The multinationals then blackmailed Congress, offering to repatriate some of the money if Congress reduced the 35% normal corporate tax rate to 5.25%, which it obligingly did. About half the $350 was brought back in 2005, but it wasn’t used to create jobs. Instead, the overwhelming evidence is that they used the repatriated funds to buy back their stock, pay dividends, and buy competitors. The same ‘gaming’ by multinationals is about to happen again; but more on that in another article.
In short, offshore shelters, offshore corporate subsidiaries, emerging markets like China, and unregulated global financial institutions like hedge funds, private equity, etc., were the recipients of the lion’s share of the $3.8 trillion. Little of that went to domestic investment and job creation in the U.S. Gross private domestic investment in the U.S. grew at a mere 2.25% annual rate over the eight years of George W. Bush. No wonder so little net job creation occurred in the US over the past decade while Bush tax cuts were in effect; and why that investment, and job creation, is still not forthcoming so long as those tax cuts remain and the proceeds redirected to offshore tax havens, offshore subsidiaries, emerging market investments, and financial speculation globally.
Another important legacy of Bush’s $3.8 trillion handout to corporations and the rich has been an acceleration in the shift of income and wealth to the top 1% wealthiest households and their corporations. This historic shift in income and wealth can be traced back to its origins in the Reagan period, but it accelerated severalfold under Bush during the last decade.
A series of academic studies since 2003 by economics professors Emmanual Saez and Thomas Picketty have uncovered the true extent of this massive income shift. Based on their deep analysis of IRS taxes paid over the history of the Federal Income Tax since 1913, Saez and Picketty found that the wealthiest 1% of households in the U.S. received about 8.3% of total income in the U.S. in 1978. By 2007, however, that wealthiest 1% received 23.5% of total income generated annually in the U.S. And that includes only reported income to the IRS, excluding offshore tax sheltered income. Were offshore income stuffed away in the various tax havens included, the percent would not doubt amount to significantly more than even the 23.5%.
What that 23.5% represents more concretely is average income gains between just 2002-2007 for the top 1% wealthiest households—those earning more than $400,000 a year—of 62%. The top 0.1% households with a minimum income of $2 million a year did even better, with a gain of 94%. The next lowest 9% realized only a 13% gain from the Bush tax cuts, while the ‘bottom’ 90% of households—about 104 million households in total—realized a mere 3.9% gain in income from the Bush tax cuts.
It is perhaps interesting to note that the 23.5% share of income accruing to the wealthiest 1% households represents a return to almost exactly what the top 1% wealthiest households received in 1928—i.e. on the eve of the last Great Depression! Could it be that such lopsided concentration of income at the ‘top’ is somehow related to the onset of severe recessions and depressions? Unfortunately, few economists today bother to explore that relationship to any extent or degree.
Unfortunately, the legacy of the Bush tax cuts remains, extended for two more years last December 2010, at a cost to the US budget of $400 billion more in addition to the original $3.8 trillion.
Last summer the US economy went into a relapse and it appeared the tepid 12 months of ‘recovery’ from June 2009 was about to end. The Federal Reserve quickly pumped $600 billion into the economy in response last fall, 2010, to re-energize the economy. The Obama administration sought to supplement the Fed with whatever fiscal stimulus it could get past the new Teaparty Republican Congress. Accordingly to Democratic party policy makers, the $400 billion further extension of the Bush tax cuts was the cost for getting agreement from Republicans to further extend unemployment benefits and to pass a middle class consumption boost by lowering the payroll tax for wage earners. The unemployment benefits and payroll tax cuts amounted to barely $120 billion, compared to the $400 billion.
Since January of this year, however, 60% of the $120 billion has been ‘eaten up’ by gasoline price hikes and much of the rest by other inflation in food, health care, education, and local tax hikes. The payroll tax cuts will expire in one year; the $400 billion goes on for two years, up to the eve of the 2012 general elections.
The $400 billion was passed based on the claim business tax cuts would help get jobs going again—a claim made for every year of the original Bush tax cuts back in 2001-03. In fact, every Bush tax cut bill was called a ‘job creation’ bill. But the facts are that Bush’s tax cuts had little impact on job creation. Between 2001-2003 jobs consistently declined. It took 46 months of ‘jobless recession’ before, in late 2004, the number of jobs lost after January 2001 was eventually recovered. It was the longest jobless recovery in US post-1945 history up to that point.
Unfortunately, today’s ‘jobless recession’ is expected to last at least 72-84 months despite the recent two year extension of the Bush tax cuts last December. As for the extension’s immediate effects, in the past five months a total of only 14,000 full time jobs have been created, according to the US Labor Department. Not much for an initial effect from extending the cuts another two years!
Nonetheless, we are still being smothered with the same economic nonsense by the US Chamber of Commerce and Wall St. Journal editorial page pundits, who continue to argue that the Bush tax cuts will create jobs. Meanwhile, the concentration of income at the top goes on while consumption by the bottom 80% of households still stagnates. Given that consumption accounts for 70% of the economy, that all but ensures that the US economy will not soon recover.
To sum up the legacy of the Bush tax cuts: trillions of dollars shifted to the wealthiest and corporations, a chronic and historically low growth in US based investment for 8 years and continuing, jobless recoveries and fewer jobs today than a decade ago, and stagnant or declining income for the bottom 90% 104 million middle class households earning $110,000 or less a year. Moreover, that legacy unfortunately will not soon disappear, even when the recent two year extension of the Bush cuts expires in late 2012. The Bush cuts, this writer predicts, will almost certainly be extended into the next decade when the current Congress and Obama administration will almost certainly renew the tax cuts once again on the eve of the November 2012 elections.
The Bush tax cuts thus promise to linger in the US body-economic like a chronic, debilitating disease. And instead of treating the deadly economic virus, politicians are today intent on practicing instead medieval remedies like ‘bleeding’ the economic patient with deficit cutting of health care and retirement social programs—Medicare, Medicaid, and Social Security. But in so doing, they just may kill the patient in the process.
Jack is the author of the 2010 book, EPIC RECESSION: PRELUDE TO GLOBAL DEPRESSION, Palgrave-Macmillan and Pluto Press, and the forthcoming, OBAMA’S ECONOMY: RECOVERY FOR THE FEW. His website is: www.kyklosproductions.com and blog is jackrasmus.com.