The real fiscal cliff winner? Bush
“Tax relief is an achievement for families struggling to enter the middle class,” the president trumpeted, shortly after Congress, by sweeping bipartisan margins and after a bruising battle, had lowered taxes for almost all Americans. “For hard-working lower income families, we have cut the bottom rate of federal income tax from 15 percent to 10 percent. We doubled the per-child tax credit to $1,000 and made it refundable. Tax relief is compassionate, and it is now on the way.”
Despite a furious counterattack from the opposition, the president had scored a major victory by securing lower tax rates for everyone in the middle class on down.
President Barack Obama last week after narrowly averting the fiscal cliff? Nope, President George W. Bush in June 2001, signing the first set of his much-sought-after tax cuts. Perhaps the “compassionate” was a giveaway.
Now that the vast majority of those cuts — to income taxes, and to much of the estate levy and capital gains and dividend rates —have been made permanent, with a bipartisan Washington consensus hardening around the benefits of tax relief, Bush must surely be smiling in Texas — and for good reason.
Republicans have now succumbed to navel-gazing, infighting and worse. But they should instead focus on how their larger principles have prevailed.
Start with income tax rates. Bush and his GOP allies long dreamed of locking in the reduced 2001 rates across the board — particularly for the middle class. In signing the temporary cuts into law, Bush highlighted the Ramos family, for whom “high taxes made saving difficult. Last year they paid nearly $8,000 in federal income taxes. Well, today we’re beginning to make life for the Ramos[es] a lot easier. ”
But while Democrats for more than a decade resisted preserving these cuts in perpetuity, years of conservative advocacy and rhetoric — combined with the real exigencies of a slumping economy and the artificial urgency of an impending deadline — shifted the conventional wisdom to the point that Democrats on the floor of the House of Representatives cheered passage of the fiscal cliff avoidance measure.
Senator Richard Durbin (D-Ill.), who voted against the original 2001 cuts, now praises “this historic vote” which “protects working families from an income tax increase and spares our economy from a devastating political disaster.”
Obama sounded a Bush-like note himself, when he stood on a stage in the White House with a group of voters in the run-up to the vote “The last thing,” Obama said, “folks like the folks up here on this stage can afford right now is to pay an extra $2,000 in taxes next year. Middle-class families can’t afford it. Businesses can’t afford it. Our economy can’t afford it.”
Indeed, in the end, more than 98 percent of Americans will permanently enjoy the benefits of tax relief enacted by Bush, promoted by his Republican supporters and ultimately signed into law by a Democratic president.
The administration’s embrace of much of Bush’s tax relief goals also extended into the realm of the estate tax. Bush’s 2003 tax-cut package — also stubbornly resisted by many of the same House and Senate Democrats who so ebulliently backed the cliff deal — increased the estate-tax exclusion from $1 million to $5 million, while reducing rates on estates above that threshold from 55 percent to 35 percent.
Many progressives had called for a return to the $1 million limit and 55 percent rate. But the Obama-GOP deal locked in the $5 million threshold, and increased rates only slightly, to 40 percent.
Similarly, Obama largely adopted his predecessor’s changes to the investment tax regime. In 2003, Bush persuaded Congress to treat dividends not as ordinary income but as investment earnings on a par with capital gains — taxed at a maximum of 15 percent. This legislation cleared the Senate only when Vice President Dick Cheney broke a 50-50 tie — with all but two Democrats opposing it.
This 2013 deal now modestly raises the rates for dividends and capital gains to a 20 percent cap for the highest earners, while enshrining the Republican principle that investment income should be considered different in kind from wages.
Once again, today’s Democrats have espoused this conservative taxation philosophy – notwithstanding stout opposition from the left.
So instead of a circular firing squad, today’s GOP should acknowledge and even trumpet the triumph of its former standard-bearer’s ideals.
As Bush noted after passage of his first tax measure, “under this law, more than 98 percent of Americans and 97 percent of small businesses will not see their income taxes go up. Millions of families will continue to receive tax credits to help raise their kids and send them to college. Companies will continue to receive tax credits for the research that they do, the investments they make, and the clean energy jobs that they create.”
Oh, wait, no: That was Obama.
PHOTO (Top): President Barack Obama walks between the Senate Minority Leader Mitch McConnell (L) ) and the House Minority Leader John Boehner at a Blair House meeting in Washington, February 25, 2010. REUTERS/Jason Reed
PHOTO (Insert): President George W. Bush beams as he looks up at members of Congress after signing a sweeping $1.35 trillion bill lowering U.S. income taxes across the board, at the White House, June 7, 2001. Surrounding Bush from left are House Speaker Dennis Hastert, Representative Bill Thomas (R-Calif.), Senator Zell Miller (D-Ga.), Senator Phil Graham (R-Texas), Senator Kay Bailey Hutchison (R-Texas), Representative Tom Delay (R-Texas), Senator Charles Grassley (R-Iowa), Senator Max Baucus (D-Mont.), Representative Jennifer Dunn (R-Wash.) and Representative Dick Armey (R-Texas). REUTERS/Kevin Lamarque