Comparing the Kennedy, Reagan and Bush Tax Cuts

August 24, 2004

Fiscal Fact No. 15

How big were the Bush tax cuts? According to the Treasury Department*, there have been 19 significant federal tax cuts since the end of World War II. Three of them have been passed under the Administration of George W. Bush—the Economic Growth and Tax Reform Reconciliation Act of 2001 (EGTRRA), the Job Creation and Workers Assistance Act of 2002 (JCWA), and The Jobs and Growth Tax Relief and Reconciliation Act of 2003 (JGTRRA).

Some taxpayers and policymakers have questioned the size of the Bush tax cut, considering the war costs and projected deficits. Table 1 below compares the 2003 tax cut with Bush’s 2001 and 2002 tax cuts, and with the two largest tax cuts in the post-WW II era—the Kennedy tax cut in 1964, and the Reagan tax cut in 1981. Table 2 compares these historic tax cuts to other federal fiscal priorities at the time.

Table 1. Kennedy, Reagan, and Bush Tax Cuts in Historical Perspective

Tax Legislation Tax Cut in Billions of Current Dollars (a) Tax Cut in Billions of Constant 2003 Dollars Tax Cut as a Percent of National Income (b) Surplus or Deficit (-) as a Percentage of National Income (b)
The Kennedy Tax Cut (Revenue Act of 1964) ($11.50) ($54.90) -1.90% -1.00%
The Reagan Tax Cut (Economic Recovery Tax Act of 1981) ($38.30) ($68.70) -1.40% -2.80%

Bush Tax Cuts:

     
Economic Growth and Tax Reform Reconciliation Act of 2001 ($73.80) ($75.80) -0.80% 1.50%
Job Creation and Worker Assistance Act of 2002 ($51.20) ($52.00) -0.60% -1.70%
Jobs and Growth Tax Relief and Reconciliation Act of 2003 ($60.80) ($60.80) -0.60% -3.20%
             2001, 2002 and 2003 Bush Tax Cuts if Combined in 2003 NA ($188.10) -2.00% -
(a) First year estimate.
(b) National Income as measured by Net National Product.

Source: Joint Committee on Taxation; Tax Foundation


Table 2.
Kennedy, Reagan, and Bush Tax Cuts Compared to Other Budget Items

Tax Legislation As a Percent of Federal Budget (a)
Tax Relief Social Security Defense All Other Domestic Spending
The Kennedy Tax Cut (Revenue Act of 1964) 8.80% 12.80% 42.10% 36.30%
The Reagan Tax Cut (Economic Recovery Tax Act of 1981) 5.30% 19.50% 22.00% 53.20%

Bush Tax Cuts:

     
Economic Growth and Tax Reform Reconciliation Act of 2001 3.80% 22.30% 15.80% 58.10%
Job Creation and Worker Assistance Act of 2002 2.50% 22.10% 16.90% 58.50%
Jobs and Growth Tax Relief and Reconciliation Act of 2003 (Bush/Thomas Proposal as of May 5, 2003) 2.70% 21.70% 17.10% 58.40%
 
  2001, 2002 and 2003 Bush Tax Cuts if Combined in 2003 8.10% 20.50% 16.20% 55.20%
(a) Percentages treat tax relief as if it were a budgetary item.
(b) National Income as measured by Net National Product.

Source: Joint Committee on Taxation; Tax Foundation

Tables 3 and 4 both break down the Bush tax cuts to show the range of benefits. Table 3 is a geographic breakdown, showing how much the citizens of each state have saved in income taxes, in total, per capita and per tax filer. Table 4 breaks down the tax cuts by income class.

Table 3. Size of the Bush Tax Cuts by State, 2000-2004

State 2001 State Tax Liability Percent of U.S. Total Savings From Bush Tax Cuts ($ Billions) 2004 Pop. (estimate, in thousands) Per Capita Savings from Bush Cuts Tax Filers (2003 est.) * Savings Per Tax Filer
 
 
 
Alabama $9,412,417.00 1.00% $3.79 4,527 $836.27 2,015,137 $1,878.83
Alaska 2,136,784.00 0.20% 0.86 654 1,314.44 347,909 2,470.51
Arizona 13,609,239.00 1.50% 5.47 5,727 955.93 2,278,085 2,403.01
Arkansas 5,046,474.00 0.50% 2.03 2,751 737.94 1,183,660 1,714.95
California 125,777,308.00 13.60% 50.59 35,950 1,407.34 15,733,500 3,215.64
Colorado 16,826,868.00 1.80% 6.77 4,646 1,456.83 2,218,466 3,050.99
Connecticut 22,162,504.00 2.40% 8.91 3,502 2,545.35 1,769,126 5,039.07
Delaware 2,723,491.00 0.30% 1.1 829 1,322.23 400,211 2,737.33
Florida 54,187,833.00 5.90% 21.8 17,325 1,258.12 7,935,612 2,746.71
Georgia 23,817,405.00 2.60% 9.58 8,858 1,081.59 3,848,912 2,489.13
Hawaii 3,089,124.00 0.30% 1.24 1,264 983.12 605,529 2,052.07
Idaho 2,665,522.00 0.30% 1.07 1,390 771.11 591,917 1,811.39
Illinois 46,394,662.00 5.00% 18.66 12,736 1,465.27 6,124,277 3,047.22
Indiana 15,936,323.00 1.70% 6.41 6,240 1,027.30 3,002,832 2,134.75
Iowa 6,756,379.00 0.70% 2.72 2,954 919.89 1,429,879 1,900.66
Kansas 7,172,558.00 0.80% 2.89 2,740 1,053.06 1,293,839 2,229.89
Kentucky 8,666,347.00 0.90% 3.49 4,147 840.51 1,848,849 1,885.50
Louisiana 9,499,745.00 1.00% 3.82 4,512 846.97 1,983,686 1,926.33
Maine 3,099,563.00 0.30% 1.25 1,313 949.65 640,934 1,945.26
Maryland 20,635,795.00 2.20% 8.3 5,563 1,492.15 2,712,837 3,059.77
Mass. 31,731,518.00 3.40% 12.76 6,473 1,971.80 3,290,823 3,878.62
Michigan 29,473,770.00 3.20% 11.86 10,132 1,170.09 4,889,114 2,424.91
Minnesota 16,972,843.00 1.80% 6.83 5,111 1,335.78 2,525,155 2,703.69
Mississippi 4,784,752.00 0.50% 1.92 2,903 663.07 1,241,889 1,549.77
Missouri 14,857,762.00 1.60% 5.98 5,746 1,040.06 2,714,372 2,201.78
Montana 1,809,781.00 0.20% 0.73 923 788.7 448,966 1,621.45
Nebraska 4,354,554.00 0.50% 1.75 1,750 1,001.10 856,061 2,046.11
Nevada 7,422,619.00 0.80% 2.99 2,325 1,284.42 1,009,495 2,957.63
New Hampshire 5,118,685.00 0.60% 2.06 1,304 1,578.79 665,863 3,092.18
New Jersey 42,375,704.00 4.60% 17.05 8,708 1,957.36 4,304,520 3,959.89
New Mexico 4,580,918.00 0.50% 1.84 1,894 972.92 770,161 2,392.55
New York 84,835,378.00 9.20% 34.12 19,278 1,770.17 9,077,453 3,759.27
North Carolina 20,534,997.00 2.20% 8.26 8,544 966.76 3,848,408 2,146.37
North Dakota 1,391,591.00 0.20% 0.56 632 885.64 320,455 1,746.77
Ohio 30,596,084.00 3.30% 12.31 11,466 1,073.35 5,900,096 2,085.92
Oklahoma 7,400,592.00 0.80% 2.98 3,537 841.55 1,550,561 1,919.85
Oregon 8,895,806.00 1.00% 3.58 3,607 992 1,653,386 2,164.22
Pennsylvania 37,564,928.00 4.10% 15.11 12,385 1,220.01 6,144,559 2,459.14
Rhode Island 3,293,967.00 0.40% 1.32 1,083 1,223.10 523,296 2,531.99
South Carolina 8,669,661.00 0.90% 3.49 4,198 830.79 1,907,500 1,828.22
South Dakota 1,839,824.00 0.20% 0.74 768 963.86 375,870 1,968.93
Tennessee 14,603,813.00 1.60% 5.87 5,909 994.17 2,716,876 2,162.16
Texas 65,677,771.00 7.10% 26.42 22,515 1,173.36 9,579,599 2,757.79
Utah 4,697,606.00 0.50% 1.89 2,395 789.1 996,844 1,895.57
Vermont 1,691,182.00 0.20% 0.68 623 1,091.87 316,824 2,147.16
Virginia 25,568,904.00 2.80% 10.28 7,475 1,375.96 3,532,773 2,911.30
Washington 21,919,383.00 2.40% 8.82 6,215 1,418.63 2,934,159 3,004.94
West Virginia 3,269,958.00 0.40% 1.32 1,808 727.45 793,642 1,657.33
Wisconsin 15,447,757.00 1.70% 6.21 5,509 1,127.92 2,748,232 2,261.01
Wyoming 1,732,086.00 0.20% 0.7 503 1,384.52 248,872 2,799.52
D.C. 2,807,314.00 0.30% 1.13 562 2,010.74 295,522 3,821.13
U.S. Total $925,537,849.00 100.00% $372.29 293,909 $1,266.70 136,146,541 $2,734.50
* Estimates of individual tax filers from Intuit, Inc.        

Source: Tax Foundation Individual Tax Model

Table 4. Before and After the Bush Tax Cuts, by Income Group

Before Bush Tax Cuts After Bush Tax Cuts
  Share of Tax Liability Tax Reduction for 2004 Share of Tax Liability Share of Tax Cuts
Bottom 20%, $0 to $14,415 0.50% $1,976,256,511 0.30% 1.20%
Second 20%, $14,415 to $25,499 2.30% $7,177,358,834 1.90% 4.20%
Third 20%, $25,500 to $41,640 5.90% $15,905,120,495 5.20% 9.40%
Fourth 20%, $41,641 to $68,295 12.60% $29,559,373,144 11.60% 17.50%
Top 20%, $68,296 and above 78.70% $114,633,332,724 81.00% 67.70%
Total Tax Liability for all taxpayers 100.00% $169,251,441,709 100.00% 100.00%
         

Top 20%

Top 20%
First Half of top 10%, $68,296 to $97,685 11.90% $26,272,937,254 11.20% 15.50%
Second Half of Top 10%, $97,685 to $136,162 10.80% $18,560,111,502 10.80% 11.00%
Top 20-5%, $68,296 to $136,162 22.80% $44,833,048,756 22.00% 26.50%
Top 5-1%, $136,163 to $335,474 18.90% $25,482,868,099 19.70% 15.10%
Top 1%, $335,475 and above 37.10% $44,317,415,869 39.30% 26.20%
Total Tax Liability for Top 20% of Taxpayers 78.70% $114,633,332,724 81.00% 67.70%

Source: Tax Foundation Individual Tax Model

    

Tax Cuts and National Income
Contrasting the size of the tax cuts with national income shows that the Kennedy tax cut, representing 1.9 percent of income, was the single largest first-year tax-cut of the post-WW II era. The Reagan tax cuts represented 1.4 percent of income while none of the Bush tax cut even breaks 1 percent of income. The Kennedy tax cuts would only have been surpassed in size by combining all three Bush tax cuts into a single package.

Tax Cuts and Budget Resources
Comparing the size of these tax cuts with the federal budget shows that the Kennedy’s tax cuts represented 8.8 percent of the budget. In 1981, Reagan’s tax cuts represented 5.3 percent of the budget. Each of Bush’s tax cuts are smaller than Reagan’s—EGTRRA (3.8 percent), JCWA (2.5 percent) and the 2003 Tax Cut (1.8 percent). When the Bush tax cuts are combined (8.1 percent), they would be larger than Reagan’s tax cut, yet smaller than Kennedy’s tax cut.

Tax Cuts and Defense Costs
When the Kennedy tax cuts were enacted, defense spending constituted a whopping 42.1 percent of the federal budget. When President Reagan pushed though his tax cuts, the Pentagon consumed 22 percent of the budget. Today, defense spending consumes just 17.1 percent of the budget—25 percentage points below Kennedy’s defense spending.

Tax Cuts and Deficits
President Kennedy passed his tax cuts as he ran a deficit equaling 1 percent of national income. In 1981, Reagan cut taxes while running a deficit of 2.8 percent of national income. In contrast, Bush passed the largest of his three tax cuts, EGTRAA, in 2001 with a budget surplus of 1.5 percent of income.

Caveats: Comparing Taxes Over Time
Comparing tax legislation over time is tricky. In the 1960s, Congress only calculated how much a tax proposal would save taxpayers in the next year. In the late 1970s, five-year estimates became the norm, and more recently ten-year estimates have been required.

Obviously, no one should compare the dollar amount of a ten-year estimate to a five-year or one-year estimate. Whenever you hear or read that the Bush tax cut in 2001 was "the biggest tax cut ever," that’s the mistake—it’s like saying an 8-oz. steak costs more now than a 16-oz. steak cost 20 years ago. With two precautions, however, tax legislation can be compared. The first step is to adjust for inflation, and the second is to compare the same number of years.

All tax estimates are published in "current dollars," without any adjustment for inflation. Since a dollar is worth a lot less now than it was 20 or 40 years ago, all dollar amounts from past estimates must be converted into "constant dollars," which adjusts for inflation. In the tables below, estimates from years past are converted into constant 2003 dollars. This answers the question: what would the tax cuts of yesteryear be worth today?

Another way to make estimates comparable over time is to measure them as a percentage of the U.S. economy, or as a percentage of the Federal Budget. Since these grow over time, we can get a sense of how big tax cuts of the past were. Keep in mind, though, that because the Kennedy tax cut was "scored" for one year only, we can only compare it to the first year of the other bills. The first year of some bills is unusually large; this is the case with the 2002 tax cut. Other tax bills have relatively small first-year effects.

And finally, one additional warning: these estimates are the predictions made before the tax cuts were passed. No one ever goes back to revise them if things turn out differently. For example, the 2001 Bush tax cut has so far turned out to be smaller than the estimates predicted because recessionary times prevented many people from taking advantage of lower rates. So while the comparison is interesting, and it gives a general idea of how large a tax cut past Presidents and Congresses were willing to consider, it is an exercise fraught with technical difficulties.

* Tempalski, Jerry, "Revenue Effects of Major Tax Bills," Office of Tax Analysis Working Paper 81, December 1998.

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