When discussing revenue growth since the enactment of the tax cuts, Administration officials typically focus only on revenue growth since 2004. This provides a convenient starting point for their arguments, as it sets a very low bar. In 2001, 2002, and 2003, revenues fell in nominal terms without adjusting for inflation for three straight years, the first time this has occurred since before World War II. Measured as a share of the economy, revenues in 2004 were at their lowest level since 1959. Given this historically low starting point, it is not surprising that revenues have recovered since then. Supporters of the tax cuts selectively cite revenue growth over just the past three years to argue that the tax cuts fueled increases in revenues. The 2001 and 2003 tax cuts were not a good idea because it added about $1.7 trillion to deficits between 2001 and 2008 and because they were financed by borrowing which increases the national debt. In an effort to bolster economic performance, President George W. Bush signed the Economic Stimulus Act of 2008 on February 13, 2008. More than two thirds of the $152 billion bill consisted of economic stimulus payments that were sent beginning in May 2008 to approximately 130 million households. As part of the ten-year tax cut bill passed by Congress in the spring of 2001, the Treasury mailed tax rebate checks of up to $300 for single individuals and up to $600 for households from late July and through late September 2001.Of those households receiving the rebate, almost 20% had reported that they would spend it and almost 32 % had reported that they would save the rebate, and 48% had reported that they would pay debt with the rebate. Concerning the impact of the rebates, the conventional wisdom is that the tax rebate signed by President Bush failed to stimulate the economy. The argument that the 2001-2003 Bush tax cuts didn’t work is based on the fact that it didn’t raise consumer spending very much. In the second quarter of 2008, when most of the rebate checks were sent out, consumer spending rose at an inflation adjusted annual rate of 1.2 percent, not much above the 0.9 percent rise in the first quarter. The one bright spot was that the number of people making $100,000 to $200,000 grew significantly between 2007 and 2008. Their ranks increased by 393,465, or 3 percent, to more than 13.8 million taxpayers. In 2008 the average Incomes fell well below 2000 level, we had more taxpayers but less revenue. In 2007 we had fewer Jobs and less money. In 2008we had even fewer jobs and lower pay. The one bright spot was that the number of people making $100,000 to $200,000 grew significantly between 2007 and 2008. Their ranks increased by 393,465, or 3 percent, to more than 13.8 million taxpayers.

This truly is good news, because most of the increase had to be people who worked their way up into six-figure incomes from 2007 to 2008. But despite that one sliver of good news, the Republican sponsored tax cuts damaged our nation. Now, the Democrats are in power. In his first term, President Obama outlined his economic policies in the 2008 Presidential election campaign. Once elected, he named former Federal Reserve Chairman Paul Volcker, who advocated tougher financial restrictions, to head his Economic Advisory Panel. He then launched the $787 billion Economic Stimulus Package, which returned the economy to positive GDP growth by the third quarter 2009. The next year, Obama pushed through the Health Care Reform Act, with the goal of lowering health care costs. He also supported passage of the Dodd-Frank Bank Reform Act, which was designed to make another financial crisis less likely. It regulated non-bank financial companies, like hedge funds, and the most complicated derivatives, like credit default swaps. It included the Consumer Financial Protection Agency, which consolidated protection for consumers with credit and debit cards, consumer and payday loans, and credit reporting agencies, and regulates credit and mortgage fees. He hasn't yet fulfilled his campaign promise to review all trade agreements to make sure they didn't cause job losses. However, he did support passage of these agreements as part of the American Jobs Act. More important, this Act sought to stimulate economic growth to create jobs. This Act was in response to unemployment that remained stuck at 9.1%. Obama and Bush Both Created Huge Budget Deficits. The fact is that both Presidents ran up record setting budget deficits. Obama's fiscal year 2012 Budget proposed a $1.07 trillion deficit, even though the recession was over. The fiscal year 2011 budget deficit was $1.3 trillion, but was delayed by the Republican House until a mere $38 billion was trimmed in March 2011. Obama's first budget in fiscal year 2010 ran the highest deficit ever almost $1.6 trillion. After Obama was elected, he also added part of the Economic Stimulus Plan. Although it was to be spent over ten years, the bulk was budgeted for the first three fiscal years: $185 billion in fiscal year 2009, $400 billion in fiscal year 2010 and $135 billion in fiscal year 2011.
This was nothing but pure business cycle. The term business cycle refers to economy-wide fluctuations in production, trade and economic activity in general over several months or years in an economy organized on free enterprise principles. These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic expansion, and periods of relative stagnation or decline or recession. The political business cycle is an alternative theory stating that when an administration of any hue is elected, it initially adopts a contrationary policy to reduce inflation and gain a reputation for economic competence. It then adopts an expansionary policy in the lead up to the next election, hoping to achieve simultaneously low inflation and unemployment on election day. Business cycles are usually measured by considering the growth rate of real gross domestic product. The tax cuts enacted in recent years have gone disproportionately to high-income Americans. In 2007, the 0.3 percent of households with incomes above $1 million received about $120,000, on average, from the 2001 and 2003 tax cuts, according to estimates by the Urban Institute-Brookings Institution Tax Policy Center. In contrast, households in the middle of the income spectrum received tax cuts averaging $740. The Tax Policy Center estimates also show that the tax cuts represent a larger fraction of income for high-income households than for low- or middle-income households, a clear indication of these tax cuts’ regressivity. As a business person, I wouldn’t have wanted my congressman to vote for the tax cut of 2008. According to McConnell, Brue and Flynn (2012) by increasing the Federal debt, the deficit spending would reduce demand for U.S. Treasuries and investors would become concerned that the government would not honor the debt. This could potentially increase interest rates, while slowing the economy. Lowered demand for Treasuries would also put downward pressure on the dollar. That's because the dollars denominated Treasury Securities would become less desirable, so their value would declines. Consequently, as the dollar declines, no foreign holders would have like to get paid back in currency that is worth less, which would on the long run decreases demand. Some raised the option of using monetary policy instead of the tax cut of 2008. In reality, both policies are similar. They are both used to keep inflation low (inflation target of 2%), maintain positive economic growth (close to long run trend rate of 2.5%), they both aim for full employment, to reduce cyclical fluctuations in the economic cycle. Fiscal Policy involves changing government spending and taxation. They also both involves a shift in the government budget position. Monetary policy involves influencing the demand and supply of money, primarily though the use of interest rates. It can also involve unorthodox policies such as open market operations and quantitative easing (McConnell, Brue & Flynn, 2012). The use of monetary in a recession would cut interest rates and stimulate spending and investment. It should also weaken the exchange rate which will help exports. However, in some situations monetary policy may be insufficient. In the recession of 2008- 2009 there was a liquidity trap. Cuts in interest rates were insufficient to encourage spending and investment. For example Banks had insufficient credit so they were unwilling to lend despite low interest rates, confidence was very low and house prices were falling reducing consumer wealth. With deflation, interest rates may be insufficient, because falling prices can make real interest rates quite high. Therefore zero interest rates may not get an economy out of recession. Monetary policy is most widely used for fine tuning the economy. However, monetary policy has its limitations. In serious recessions, we invariably need a combination of the two policies. In conclusion, a study by the President’s own Treasury Department confirmed the common sense view shared by economists across the political spectrum that cutting taxes decreases revenues and the suggestion that tax cuts pay for themselves is contradicted by history. Even the robust revenue growth in 2005-2007 has not made up for weak revenue growth over the previous few years. And, because of the impact on the budget of the continued rise in health care costs and the retirement of the baby boomers, the tax cut will still be a major contributor to the nation’s fiscal problems. Even if the tax cuts’ costs are eventually paid for through a more balanced package of spending reductions and progressive tax increases, data from the Tax Policy Center show that, on average, the bottom four-fifths of households will lose more than they gain from the combination of tax cuts and the financing for them. That is, once the need to pay for the tax cuts is taken into account, the 2001 and 2003 tax cuts are best seen as net tax cuts for the top 20 percent of households, as a group, financed by net tax increases or benefit reductions for the remaining 80 percent of households, as a group.

End Notes
Government finances and debt held by public: Congressional Budget Office, Historical Budget Data, http:// www.cbo.gov/budget/budget.cfm accessed March 2013.
James H. Stock, Mark W. Watson, “Has the Business Cycle Changed and Why?”, URL: http://www.nber.org/chapters/c11075 accessed March 2013.
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2012). Economics: Principles, problems, & policies (19th ed). New York, NY: McGraw-Hill/Irwin Publishing Co.
Poverty rate: U.S.Census Bureau: http://www.census.gov/hhes/www/poverty/ data/index.html access March 2013