012009 Economic Stimulus Package
In February 2009, Congress approved Obama’s economic stimulus package. It restored confidence and ended the Great Recession in July 2009. Its cut $288 billion in taxes. It reduced that year's income taxes for individuals by $400 each and $800 for families. Instead of checks, workers received a lower withholding in their paychecks. It wasn't publicized very well, so many people didn't even notice the increase.
ARRA also reduced income taxes by the amount equal to the sales tax on a new car purchase. It provided $17 billion in tax cuts for households who invested in renewable energy. It included $54 billion in small business tax cuts.
The Congressional Budget Office estimated ARRA would save between 900,000 and 2.3 million jobs. In addition to tax cuts, it spent $224 billion in extended unemployment benefits, education and health care. It also spent $275 billion for job creation using federal contracts, grants and loans.
The ARRA also spent $83 billion in public construction and $117 billion to improve education. There was $18 billion in science research funding, $54 billion to help small businesses, and $22 billion to increase alternative energy production. Another $138 billion funded health care.That included $24 billion to subsidize the Consolidated Omnibus Budget Reconciliation Act benefits for laid-off workers and $87 billion to help states with Medicaid.
022010: Extension of Bush Tax Cuts
The Bush administration cut taxes in 2001 and 2003. The Economic Growth and Tax Relief Reconciliation Act cut income taxes. It saved taxpayers $1.35 trillion over 10 years. But most of those benefits accrued either to families with children or high-income earners. The Jobs and Growth Tax Relief Reconciliation Act cut corporate taxes and accelerated the income tax phase-in. Congress passed the Bush tax cuts to fight the 2001 recession.
In 2010, the House gained 60 Republicans. That created a majority who elected a new House Majority Leader, John Boehner. Republicans won an additional six seats in the Senate, but not the majority. The Republicans wanted to reduce the deficit, keep the Bush tax cuts for everyone and eliminate Obamacare. The change meant Obama had to negotiate with the lame duck Congress. That enabled the Obama tax cuts to pass before the end of 2010.
032013: Fiscal Cliff Tax Cut
The fiscal cliff refers to the disaster that would have occurred if Obama and Congress hadn't agreed on a plan to prevent it. Without the deal, a combination of five tax increases and two spending cuts would have occurred on January 1, 2013. The CBO estimated it would have removed $607 billion from the economy in the first nine months of 2013. The economy would have contracted 1.3 percent, throwing the country back into recession.
Instead, the American Taxpayer Relief Act extended the Bush tax cuts for those with incomes below a threshold. This threshold was $400,000 for individuals and $450,000 for married couples. Incomes at and above the threshold were taxed at the Clinton-era 39.6 percent tax rate.
04Do Tax Cuts Create Jobs?
Dollar for dollar, tax cuts are not the best way to create jobs. According to the CBO, the Bush tax cuts created 4.6 jobs for every $1 million in cuts. Unemployment benefits created 19 jobs for the same $1 million spent.
If Congress insists on tax cuts, then the best kind are payroll tax cuts. They create 13 new jobs for every $1 million. If these employers only get the cuts when they create new jobs, it boosts job creation to 18 jobs per $1 million.
In addition to creating jobs, every dollar spent on unemployment benefits stimulates $1.73 in economic demand. This is according to an Economy.com study. The unemployed spend every dollar they receive on essentials, such as food, clothing, and housing.
Estimates said that every month in which benefits were extended costs taxpayers $10 billion. But it also generated $17.3 billion in economic growth each month.
06How Tax Cuts Add to the Debt
At $21 trillion, the U.S. debt is the largest in the world. It is almost equal to total annual economic production. How did it get so large? Even before the economic crisis, the debt grew 50 percent between 2000 and 2007, ballooning from $6 trillion to $9 trillion. The $700 billion bailout helped the debt grow to $10.5 trillion by December 2008.
Stimulus spending added another $3 trillion in two years. Military spending increased, while revenues from taxes declined after the recession. As a result, Obama added $8.5 trillion to the debt.
07Why Do We Pay Taxes?
Obama Tax Cuts Facts and Consequences
Why Did Obama Extend the Bush Tax Cuts in 2010?
When people refer to President Obama's tax cuts, they generally refer to the $858 billion tax cut deal signed in 2010. It extended the Bush tax cuts through 2012 and unemployment benefits through 2011. It cut payroll taxes by 2 percent, adding $120 million to workers' spendable income. It extended a college tuition tax credit. It also included $55 billion in industry-specific tax cuts.
To pay for part of these costs, Obama’s deal revived the inheritance tax that had lapsed for a year. It applied a 35 percent tax rate to estates worth over $5 million for individuals or over $10 million for families.
But Obama also cut taxes in 2009 and 2013. In 2009, $288 billion were cut as part of the American Recovery and Reinvestment Act. In 2013, Obama approved the permanent extension of the Bush tax cuts for those below a certain income level. This was part of the fiscal cliff package.