Speaker Nancy Pelosi

U.S. House of Representatives

Mythbuster: Top GOP Myths about the Bush Tax Cuts

August 16, 2010
MYTH: Democrats plan a $3.8 trillion tax increase on January 1st.

FACT: NOT TRUE! President Obama's FY 2011 budget proposes $1.7 trillion in tax relief--extending the 2001, 2003 tax cuts for middle-class families, including the child tax credit, reductions in rates, and marriage penalty relief for middle class Americans, while allowing "tax cuts that affect families earning more than $250,000 a year" to expire. This would mean no tax change for 98% of American families and at least 97% of small businesses. And for the wealthiest 2% of Americans with an average income of $800,000 per year, the top marginal tax rate would return to the level at the end of the 1990s, a time of remarkable job growth and economic strength.

Both Speaker Nancy Pelosi and Majority Leader Harry Reid support the extension of middle class tax cuts and plan to bring legislation to the floor to extend these middle class tax cuts this year. In fact, the new statutory pay-as-you-go budget law paves the way enacting this key middle class tax relief--exempting:

Extension of child tax credit, marriage penalty relief and reduction in income tax rates for taxpayers with incomes below $250,000.

Permanent extension of 15% top rate on capital gains and dividends for couples earning under $250,000 and individual earning under $200,000.

We believe these tax cuts for middle class families are critical. America is a less equal country today than it was ten years ago, in part because of the Bush tax cuts for the wealthiest 2 percent. The wealthiest 400 taxpayers in 2007 -- who earned an average of more than $340 million dollars each that year -- paid only 17 percent of their income in tax, a lower rate than many middle class families.

Independent analysts have rated these Republican charges a "pants on fire" lie. PolitiFact noted that Sarah Palin:

responded as if the Democrats intend to allow all the Bush tax cuts to expire for everyone... But that's not what Democrats are proposing; they want to leave tax rates untouched for people who make less [than $250,000]. We've looked for a Democrat who supports letting all the Bush tax cuts expire, and we haven't been able to find one.

Politifact also noted:

...President Obama has proposed formal plans to leave tax rates in place for the middle class while raising taxes on the wealthy -- for example, on pages 39 and 164 of his 2011 budget.

When the tax cuts were put in place, Republicans sunsetted them after 10 years in order to hide their true cost to the deficit. So their expiration would be due to Republican policies.

Republicans also voted against tax relief for 125 million families and for small businesses, while offering up the same policies of tax cuts for the wealthiest few that got us into this mess.

MYTH: Letting the tax cuts for the wealthiest few expire will hurt small business.

FACT: NOT TRUE! At least 97% of small businesses would not pay a penny more due to letting these upper-income tax rates expire, according to a range of experts.

The independent analyst Politifact rates this claim as "Pants on Fire" as "two independent studies that looked at the impact of the Democratic proposal on small businesses found that only between 2 to 3 percent of tax filers who report having what can be thought of as small business income will be affected," including the Tax Policy Center and the Joint Committee on Taxation.

And even these studies overstate the impact on small business. Included in that small percentage of "small businesses" affected (2-3%) is anyone who receives any type of partnership or business income--so every partner in a major law firm and every principal in a major financial institution would count as a separate small business. A CEO who has board fees or speech fees would also count as a small business owner under this overly broad definition.

Instead of working to help American small businesses, Republicans have voted against:

Small business lending to leverage $300 billion in private bank loans for small businesses so they can grow and hire. Learn more»

Eight small businesses tax cuts that have been enacted into law--including doubling write-offs for investment in new equipment, a payroll tax holiday for hiring workers, and tax credits to help them offer health care coverage. Learn more»

MYTH: Extending Bush tax cuts for the wealthy is the best way to stimulate the economy.

FACT: NOT TRUE! In fact, it's just the opposite--the Congressional Budget Office and other independent experts on the economy have concluded that tax breaks for the wealthy provide just about the lowest return on investment of any federal stimulus activity.

The Washington Post explains:

Analyzing the best bang-for-the-buck policies to stimulate the economy, the Congressional Budget Office found that the least effective was extending tax cuts for the top brackets. The reason is obvious. "The higher-income households . . . would probably save a larger fraction of their increase in after-tax income," the CBO said.

History bears that out. President Bush, while providing tax cuts for the wealthiest, had the worst jobs record of any President since the Great Depression, with private sector jobs losses of nearly 700,000 and 4.6 million manufacturing jobs lost over eight years:

President Bush Jobs' Record

Long term these tax cuts for the wealthy few would add over $700 billion to the deficit, threatening higher interest rates, and that is not good for the economy:

Debt Due to Bush Tax Cuts

Read more on how the Bush tax cuts for the wealthiest few would impact the economy»

MYTH: Tax cuts pay for themselves.

FACT: NOT TRUE! A range of experts from President Bush's top economic adviser to former Fed Chairman Alan Greenspan all conclude that tax cuts do not pay for themselves. Time magazine explains, "virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to. Harvard professor Greg Mankiw, chairman of Bush's Council of Economic Advisers from 2003 to 2005, even devotes a section of his best-selling economics textbook to debunking the claim that tax cuts increase revenues."

Greg Mankiw, George W. Bush's CEA chair:

Used the term "charlatans and cranks" for people who believed that "broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue." He continued: "I did not find such a claim credible, based on the available evidence. I never have, and I still don't."

House Republican Whip Eric Cantor:

Admitted that extending the tax cuts for the wealthiest would mean that "you are going to dig the hole deeper."

David Stockman, President Reagan's Director of the Office of Management and Budget said:

It is...unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation's wealthiest taxpayers be spared even a three-percentage-point rate increase.

...This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party's embrace, about three decades ago, of the insidious doctrine that deficits don't matter if they result from tax cuts...

Alan Greenspan, Chairman of the Federal Reserve (nominated by President Reagan):

When asked if he agrees with Republicans who say that tax cuts pay for themselves, Greenspan, who led the U.S. central bank for nearly 20 years, simply said: "They do not."

Doug Holtz-Eakin, former CBO Director and top McCain adviser:

I have never been in the camp that believes that quote 'tax cuts pay for themselves.' There is no serious research evidence to suggest that. The work we've done on what would happen if you were to sort of raise or lower taxes suggest about a 20 to 30 percent offset, depending on how you do it. And I think that's in the mainstream of the thought.