In 2010, President Obama signed a $858 billion tax cut deal that 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. To partially pay for this, the 35% inheritance tax on the wealthy (estates worth $5 million individuals/$10 million families) was revived after a year-long lapse. It also included $55 billion in industry specific tax cuts. (Source: Washington Post, "Obama, GOP reach deal to extend tax breaks," December 7, 2010)
1. 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 will create 4.6 jobs for every $1 million in cuts, which will be extended for two years. Unemployment benefits? Much better - at 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, which have been added as part of the negotiation, will create 13 new jobs for every $1 million in cuts. If these employers only get the cuts when they create new jobs, this boosts job creation - to 18 jobs per $1 million.
2. Extended Unemployment Benefits Best Way to Boost Economy
The unemployed spend, not save, their benefits. (Photo: Chris Hondros/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. However, it also generates $17.3 billion in economic growth.
3. Details of Bush Tax Cuts
President George Bush's tax cuts occurred in 2001 and 2003. President Bush also gave tax refunds in 2008. It saved taxpayers, and increased the debt, by $1.35 trillion over a 10-year period. The Urban Institute said the tax cuts benefited families with children, and those with incomes over $200,000, the most.4. 2010 Election Results Impact on Economy
The 2010 mid-term elections ushered in a Republican majority in the House (a gain of 60 seats), and a new House Majority Leader, John Boehner. Republicans won an additional 6 seats in the Senate, but not the majority. The Republicans said they want to reduce the deficit, keep the Bush tax cuts for everyone and reduce or even eliminate health care reform. This change meant Obama had to become willing to negotiate with the lame duck Congress, enabling the Obama tax cuts to pass before the end of 2010.5. How Did the U.S. Run Up a $14 Trillion Debt?
At $14 trillion, the U.S. debt is the largest in the world. It is nearly equal to total annual economic production. The interest alone is $414 billion (Fiscal Year 2010) How did it get so large? Even before the economic crisis, the debt had grown 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.
6. Obama's 2009 Economic Stimulus Package
The $787 billion economic stimulus package was approved by Congress in February, 2009. The plan was to jump start economic growth, and save between 900,000-2.3 million jobs. The economic stimulus bill 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.
