NCPA - National Center for Policy Analysis

Frequently Asked Questions about the Expiring Bush Tax Cuts

April 24, 2012

Billions of dollars in tax cuts are set to expire at the end of the year.  The following are brief explanations of some of the often-asked questions regarding the Bush Tax Cuts, says the Tax Foundation.

What are the "Bush Tax Cuts," why are they expiring this year, and what is likely to happen?

  • The Bush Tax Cuts are a series of tax system alterations passed by Congress in 2001 and 2003.
  • They provided significant tax reductions for nearly all taxpayers, reducing marginal tax rates and adding a new 10 percent bracket.
  • They also expanded certain tax credits, including the child tax credit.
  • It remains undecided what will happen to the cuts, which are set to expire at the end of 2012, but the plan outlined in the Obama administration's budget would allow for the continuation of most policies except for the tax rate reduction on the highest margin of income.

How much did the Bush tax cuts cost the Treasury in forgone revenue?

  • Such estimation is difficult because people likely responded to the tax cuts by working more and earning higher incomes -- this makes it difficult to compare revenue received with what might have been collected under previous laws.
  • The original estimate by the Joint Committee on Taxation was that the Bush tax cuts would, over the 10-year period, allow taxpayers to keep $1.6 trillion dollars that they would have remitted in taxes under the Clinton-era rates.
  • A backward-looking analysis by the liberal Citizens for Tax Justice finds that the cuts cost $2.5 trillion -- a value that we might consider the upper-end figure.

Who benefited most from the Bush Tax Cuts?

  • Liberals emphasize the fact that the rich received the greatest tax cut, but this is measured in absolute dollars.
  • However, tax benefit is best measured as a percentage of income that payers were allowed to keep.
  • When assessed this way, the cuts helped the poor most because, after all rate cuts and credit expansions are included, they were allowed to keep the greatest percentage of their income.

Source: "Frequently Asked Questions on the Expiring Bush Tax Cuts," Tax Foundation, April 11, 2012.

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