Obama Tax Cuts Facts and Consequences

Why Did Obama Extend the Bush Tax Cuts in 2010?

In 2010, President Obama signed a $858 billion tax cut deal. It extended the Bush tax cuts through 2012 and unemployment benefits through 2011. It cut payroll taxes by 2%, adding $120 million to workers' spendable income. The Obama tax cut deal extended a college tuition tax credit. It also included $55 billion in industry specific tax cuts.

To partially pay for this, it revived the inheritance tax that had lapsed for a year. It applied 35% taxes to estates worth $5 million individuals or $10 million families.  (Source: Washington Post, "Obama, GOP reach deal to extend tax breaks," December 7, 2010)

Details of Bush Tax Cuts

Obama extended the Bush Tax Cuts
President Barack Obama talks with president George W. Bush during his inauguration as the 44th President of the United States of America on the West Front of the Capitol January 20, 2009 in Washington, DC. Obama becomes the first African-American to be elected to the office of President in the history of the United States.. Photo by Chip Somodevilla/Getty Images

President George Bush's tax cuts occurred in 2001 and 2003. President Bush also gave tax refunds in 2008. EGTRRA alone saved taxpayers $1.35 trillion over ten years. But those benefits accrued mostly to families with children and to high-income earners. More

Obama's 2009 Economic Stimulus Package

'The Salford Quays Millennium footbridge' at dusk with 'The Lowry' in background. Bridge designer 'Carlos Fernandez Casado'. Photo: Allan Baxter/Gety Images

Congress approved the $787 billion economic stimulus package in February 2009. It jumpstarted economic growth by June 2009. It was designed to save between 900,000-2.3 million jobs. It allocated funds as follows:

  • $288 billion in tax cuts.
  • $224 billion in extended unemployment benefits, education and health care.
  • $275 billion for job creation using federal contracts, grants, and loans.

Details of Obama Economic Stimulus Package

man spending ARRA tax cuts on yellow peppers
ARRA tax cuts gave everyone more money to spend on the everyday items that revitalized the economy.. Photo: Steve Debenport/Getty Images

The Stimulus Package spent $83 billion in public construction, and $117 billion to improve education. There was also $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 COBRA benefits for laid off workers and $87 billion to help states with Medicaid. More

Do Tax Cuts Create Jobs?

All tax cuts are not equal in creating new jobs. (Photo: Tim Boyle/Getty Images)

The Congressional Budget Office(CBO) found that the Bush tax cuts created 4.6 jobs for every $1 million in cuts. Unemployment benefits created 19 jobs for every $1 million in benefits. Both are equally good at increasing the Federal deficit.

The CBO study also found that payroll tax cuts created 13 new jobs for every $1 million in cuts. If these employers only get the cuts when they create new jobs, it boosts job creation to 18 jobs per $1 million. More

Extended Unemployment Benefits Best Way to Boost Economy

Each dollar of unemployment benefits generates $1.64 in economic growth.. Photo: Tetra Images/Getty Images

In addition to creating jobs, every dollar spent on unemployment benefits stimulates $1.73 in economic demand, according to an Economy.com study. That's because the unemployed spend every dollar they receive on basic essentials, such as food, clothing and housing.  It is estimated that every month benefits are extended costs taxpayers $10 billion. But it also generates $17.3 billion in economic growth. More

2010 Election Results Meant Tax Cuts Had to Pass by Year-End

Boehner and Obama agree on TPA
Speaker of the House John Boehner, U.S. President Barack Obama and Irish Prime Minister, or Taoiseach, Enda Kenny walk down the steps of the House of Representatives after they attended the St. Patrick's Day lunch at the U.S. Capitol March 17, 2015 on Capitol Hill in Washington, DC. Speaker Boehner hosted the lunch to celebrate St. Patrick's Day.. Photo by Alex Wong/Getty Images

In 2010, the House gained 60 Republicans. That created a majority who elected a new House Majority Leader, John Boehner. Republicans won an additional 6 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.

How Tax Cuts Add to the Debt

U.S. debt
RNC Chairman Reince Priebus points to a display showing the national debt at the start of the Republican National Convention at the Tampa Bay Times Forum on August 27, 2012.. Photo by Chip Somodevilla/Getty Images

At $19 trillion, the U.S. debt is the largest in the world. It is nearly equal to total annual economic production. How did it get so large? Even before the economic crisis, the debt grew 50% between 2000-2007, ballooning from $6-$9 trillion. The $700 billion bailout helped the debt grow to $10.5 trillion by December 2008. The economic stimulus package and other stimulus spending added another $3 trillion in two years. Military spending boosted spending, while revenues from taxes declined after the recession. More

Why Do We Pay Taxes?

why do we have to pay taxes
Why do we have to pay taxes? Ask Congress.. Photo: Pamela Moore/Getty Images

Blame Congress for taxes. The Constitution gives Congress the "the power to lay and collect taxes."  Of course, it does so to pay for government services. The largest of these are Social Security, Medicare, and our nation's defense.  More

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