Obama Tax Cuts Facts and Consequences

Why Did Obama Extend the Bush Tax Cuts in 2010?

In 2010, President Obama signed an $858 billion tax cut deal. 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. (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

The Bush administration cut taxes in 2001 and 2003. EGTRRA cut income taxes. It saved taxpayers $1.35 trillion over 10 years. But most of those benefits accrued to families with children and to high-income earners. JGTTRA cut corporate taxes. It also accelerated the income tax phase-in. Congress passed both tax cuts to fight the 2001 recession.  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

In February 2009, Congress approved the American Recovery and Reinvestment Act, Obama’s $787 billion economic stimulus package. The ARRA ended the Great Recession in June 2009. The administration promised it would save between 900,000 and 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 the American Reinvestment and Recovery Act

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)

Dollar for dollar, tax cuts are not the best way to created jobs. The Bush tax cuts created 4.6 jobs for every $1 million in cuts, according to the Congressional Budget Office. 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. 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. Estimates say that every month benefits are extended costs taxpayers $10 billion. But it also generates $17.3 billion in economic growth every month. 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 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.

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 $20 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 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.

The economic stimulus package and other stimulus spending added another $3 trillion in two years. Military spending increased, while revenues from taxes declined after the recession. For more, see How Much Did Obama Add to the Nation's Debt? 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