Ryan Marschang

AP Macroeconomics

Final Exam Essay Question 2

Tax Bungle

        George W. Bush, former President of the United States, during his time in office achieved very little. In fact, not only did he fail to achieve but he actually negatively impacted many aspects of society including the economy. Bush was inaugurated into office alongside a large surplus bequeathed from Bill Clinton. Furthermore, at the time of his entry into the White House, the United States was faced with three central challenges. The economy was slowly declining into a recession, inequality was on the rise and American institutions such as Medicare and Social Security were in need of funding and innovation. Bush’s first action in office was to implement a tax cut that supposedly would stimulate the economy back into economic growth. However, the Bush tax cut, according to Joseph E. Stiglitz in his article “Bush’s Tax Plan – The Dangers”, was an utter disaster, in all respects.  

        The proposed Bush tax cut had several key components. Firstly it was composed of an overall income tax cut. However, it was not just a simple tax cut, the income tax rate was reduced more for those in the highest tax bracket and less for those in the smallest tax bracket, as such it wasn’t equal for all members of society; it severely favored the rich over the poor. Furthermore, the plan included large dividend tax cuts. A dividend tax is an income tax on dividend payments to the stockholders of a company. In addition to the above tax cuts, large estate tax cuts were proposed. The estate tax is unique to the United States, it is a tax imposed on the transfer of the ‘taxable estate’ of a deceased person. This tax proposal was overall of tremendous benefit to the rich; this will explained further later on.

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        Stiglitz points out very clearly that this proposed tax cut plan was not designed to stimulate the economy. However, it in fact would lead to the creation of further inequalities in society. It does so by creating a tax cut which severely favors the rich and not the poor. For example, 50% of all tax filers would receive $100 or less and two thirds $500 or less, yet rich individuals such as Bush would save $44,500 on the 2001 tax returns. Some of this is due to the fact that the rich own most of the country’s dividend-paying stocks and ...

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