The George W. Bush tax cuts, enacted in 2001, were supposed to deliver an era of growth and prosperity for Americans. However, according to a new study by a Pulitzer Prize winning reporter and columnist, the Bush tax cuts actually cost Americans a staggering $6.6 trillion in personal wealth over the first 12 years they were in effect.
How much would $6.6 trillion actually be worth to Americans? The amount would be “enough to pay off all the student loans in United States ($1.26 trillion), all the automobile loans ($892 billion) and all the credit card debt ($827 billion),” wrote journalist and law professor David Cay Johnston. But that’s not all.
“After paying all that debt off and taking taxes into account, Americans still would have more than $2.4 trillion left in their pockets and bank accounts,” Johnston wrote.
According to Johnston’s figures, the Bush tax cuts — which were extended in 2010 by President Barack Obama despite a campaign pledge to let them expire — have cost each and every American approximately $48,000 — or about $11 cash every single day from 2001 until 2012.
The findings appear to make no sense. How did Johnston decide that lower taxes actually reduced personal income, rather than increasing it?
Johnston, whose 2001 Pulitzer came for his reporting on how the U.S. tax code allowed corporations to pay less in taxes than individual Americans, used IRS tax data to compare average American incomes for every year from 2000 to 2012.
He found that in all but two of those years, incomes went down — Americans lost money. In the two years that incomes went up, the increases were small and easily offset by the mounting losses.
The tax cuts slowed economic growth, Johnston says, by taking away the capital needed to invest in basic infrastructure and research that creates prosperity.
On the other hand, tax increases put into effect in 1993 led to a period of economic growth.
In fact, in periods when taxes are high, the economy grows at a faster rate, author Larry Beinhart explained in a recent article — citing the World War II era and the Eisenhower years when America enjoyed rapid economic growth with a top tax rate of around 90 percent.
“With high taxes, the only way to retain the bulk of the wealth created by a business is by reinvesting it in the business — in plants, equipment, staff, research and development, new products and all the rest,” Beinhart explained. “This creates a bias toward long-term planning….(a company) wants a happy, stable work force. It becomes worthwhile to pay good wages and offer decent benefits.”
Low taxes, on the other hand, encourage stockholders to take money out of a company, because they know the profits will be taxed lightly and they can hold on to the cash in their own bank accounts.
“The empirical evidence that tax cuts produce jobs just doesn’t exist,” Johnston said.
Watch the video below to hear David Cay Johnston explain how the Bush tax cuts took money out of each and every American’s pocket, and see if his explanation makes sense to you.