George W. Bush: The American Presidents Series: The 43rd President, 2001-2009

by James Mann

  It had not occurred to Bush yet that his advisers might not agree among themselves, that there might be submerged but intense frictions among them whose resolution would require more knowledge and experience than he possessed. Nor did George W. Bush realize that he would soon face world-changing events unlike any that his father’s administration had ever confronted. He was a president with a bold domestic agenda, lacking majority support among the American public and confronting a world for which neither he nor his famous advisers were prepared.

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  The New President and His Tax Cuts

  On January 20, 2001, thirty-nine days after the Supreme Court decision, George W. Bush was sworn in as the nation’s forty-third president. As he took the oath of office, his father brushed back tears; the two of them became the first father-and-son pair to serve as president since John Adams and John Quincy Adams. In his inaugural address, the younger Bush called upon the nation to rise above the rancor of the 2000 campaign and its aftermath. “Civility is not a tactic or a sentiment,” he declared. “It is the determined choice of trust over cynicism, of community over chaos.”

  There were widespread expectations that after the bitterly fought election, Bush would begin modestly and seek reconciliation with the Democrats. Those predictions were based on the notion that he would need to broaden his political support in order to govern. He had become president without winning a majority of the popular vote, and the election had resulted in a Senate that was split, fifty to fifty, and a House of Representatives in which Republicans held only a narrow majority of nine seats. A patient, accommodating approach would have been in accordance with the way Bush, as governor, had courted the support of Democratic leaders in the Texas legislature. Furthermore, his presidency had a hurried start-up: the delays in settling the 2000 election prompted by Bush v. Gore meant that Bush took office with an unusually short transition period.

  Bush confounded all these predictions. During his first months, he put forward far-reaching initiatives and took a hard line in pressing for them. Indeed, the most consequential piece of domestic legislation in Bush’s entire tenure in the White House was enacted less than five months after he took office. It was called the Economic Growth and Tax Relief Reconciliation Act of 2001, more commonly known as the first of the Bush tax cuts. That measure, followed by another major tax reduction two years later, would effectively transform America’s economy, its politics, and, indeed, the very nature of American society.

  Bush had made his promise to cut taxes the centerpiece of his 2000 campaign. At the time, this pledge served the purpose of undercutting Steve Forbes, the antitax Republican who had run as the conservative alternative to Bob Dole in the 1996 primaries and had announced his candidacy for 2000. More important, Bush’s campaign proposal, which called for a reduction of $1.6 trillion over a ten-year period, served notice to the right wing of the Republican Party that he would govern differently from his father. Conservatives had never forgiven the elder Bush for raising taxes a decade earlier.

  In the final years of the Clinton administration, the U.S. government had begun to run growing budget surpluses, the result of America’s growing prosperity and a tax increase in the early Clinton years. By 2000 it was estimated that over the following decade, the surpluses would add up to $4.6 trillion. At one point in that year’s presidential campaign, Bush accused Al Gore, his Democratic opponent, of making so many promises to voters that he would fritter away the surplus.

  By early 2001, as Bush took office, there was considerable debate over what to do with the surplus. The nation could spend more on new programs, such as education, health care, or infrastructure; it could use the surplus to pay down America’s long-term debt; or it could return the money to taxpayers in the form of a rebate or a tax cut.

  Bush took the latter course, urging Congress to enact the tax cuts he had proposed during the campaign and to do so quickly. His underlying rationale was simple. “I believed government was taking too much of the people’s money,” he later explained. Bush called for a series of reductions in the personal income tax across all brackets, but the most significant proposal was to drop the rate for the highest tax bracket from 39 percent to 33 percent. He also advocated the abolition of estate taxes. Under the plan Bush submitted to Congress more than a third of all the tax savings was to go to the top 1 percent of all taxpayers.

  Less than a week after Bush’s swearing-in, Alan Greenspan, the chairman of the Federal Reserve, supported the idea of a tax cut, testifying that the large surpluses made cutting taxes a reasonable approach. Greenspan included the proviso that such a cut should be conditional: if the surplus vanished, the tax cuts should end, too. Greenspan’s endorsement carried enormous impact, but the conditionality was accorded far less attention.

  Bush’s plan quickly ran into resistance from Democratic leaders, from a handful of moderate Republicans, and from his own secretary of the treasury, Paul O’Neill. The Democrats protested that the cuts were skewed toward higher-income Americans and would reduce the money available for social programs. O’Neill, a longtime friend of both Cheney and Greenspan, strongly opposed the idea of a permanent tax cut, arguing instead that the legislation should include “triggers” that would end or phase out the tax reductions if the federal government began running deficits once again.

  Bush’s justification for the tax cuts changed over time. Initially, the rationale was that the nation was running a large budget surplus, but later on his argument was that because the economy was sliding toward recession, a tax cut was needed to stimulate spending. O’Neill countered that if boosting the economy were the objective, then a better response would be to give taxpayers a large, onetime rebate that would put money into immediate circulation, without fixing into law a tax cut that would affect the economy and the government’s budgets years into the future. “I have about $125 billion of surplus in Treasury’s checking account,” O’Neill told one group of senators. “Why don’t you use that for an immediate tax rebate?”

  Bush held firm. In this initial battle, he displayed many of the qualities that would come to characterize his presidency. He refused to let the debate become bogged down in nuances or detail, such as the idea of “triggers.” He formulated a simple position and tried to hold to it. When his economic advisers began suggesting in March that he scale back his proposals, Bush replied, “It’s not time to negotiate. We’ll be negotiating with ourselves.” A variant of this line—I’m not going to negotiate against myself—became a frequent Bush refrain.

  Rather than seeking a compromise, Bush managed to persuade quite a few conservative and centrist Democrats to support his proposals. The overall size of the tax-cut package was cut from $1.6 trillion to $1.35 trillion over ten years, and the reduction in the top income tax rates was fixed at 35 percent rather than 33 percent. The estate tax was not abolished, but the amounts excluded from the tax were steadily increased, and the tax rate itself was cut.

  Finally, sunset provisions were written into the legislation, so that the tax cuts would expire after ten years. This time limit served to keep the tax package in compliance with a Senate rule that had set limits on how much the federal deficit could be increased. It made the tax package seem less costly and thus more palatable. Yet in practical terms, as supporters realized, the tax cuts would be difficult to reverse. After Bush left the White House, his successor was obliged to wage a two-year campaign to persuade Congress to let the Bush tax cuts expire as planned under the sunset provisions and then only for those with high incomes; the tax cuts for the middle class proved politically untouchable and were made permanent, adding considerably to the budget deficit.

  Bush’s initial legislative battle had a series of profound political ramifications, both immediately and over the long run. During the negotiations on the tax bill, a group of moderate Republican senators tried unsuccessfully to persuade Bush to water down the legislation. One of them, Senator James Jeffords of Vermont, asked Bush to allot more money to speci
al education. When Bush turned him down, Jeffords quit the Republican Party and became an independent who caucused with the Democrats, thereby giving the Democrats control of the Senate until the next congressional election. “In the past, the various wings of the Republican Party in Congress have had some freedom to argue and influence and ultimately to shape the party’s agenda,” Jeffords told reporters. “The election of President Bush changed that dramatically.” Jeffords’s defection presaged a broader change. Under Bush, the center of gravity within the Republican Party shifted steadily to the right, and moderates were increasingly marginalized.

  Bush followed up these initial tax reductions with another round of sizable cuts two years later. By then, the hopes in early 2001 of budget surpluses extending through the end of the decade were all but forgotten; the federal government was already running a deficit, and the only question was the extent to which any new tax cut would increase that deficit. Just after the 2002 elections, during his final month in office, O’Neill argued against new tax cuts on grounds that the federal government was already moving toward fiscal crisis. However, Cheney told him, “Reagan proved deficits don’t matter.… We won the midterms. This is our due.”

  This time, Bush at first proposed a complete elimination of taxes on dividends as part of a package of $550 billion in new cuts. There was stronger opposition in Congress than in 2001, both because of the mounting budget deficits and because of Democratic criticisms that the package was skewed toward the wealthy. There are some indications that by this juncture Bush himself was becoming uneasy with how much his actions were helping people in the highest tax brackets. During the discussions over his package, he asked at one point: “Won’t the top-rate people benefit the most from eliminating the double taxation of dividends? Didn’t we already give them a break at the top?”

  By the time of the second tax cut, Bush had already dispatched American troops to Iraq. That made the tax cuts of 2003 historic: in every other military conflict since the Civil War, U.S. presidents have raised taxes to help defray the costs. Bush not only declined to raise taxes during wartime but lowered them. When one of Bush’s principal economic advisers, Lawrence Lindsey, speculated before the Iraq War that it would cost more than $100 billion, the White House repudiated his prediction, and Bush fired him two months later. Lindsey’s estimate turned out to be far too low.

  Ultimately, Congress decided not to abolish the tax on dividends but instead to cut the top tax rate to 15 percent. It also cut the maximum tax on capital gains to the same rate of 15 percent. The size of the package was cut from $550 billion to $350 billion. This measure passed the House 231 to 200, with only seven Democrats supporting the measure. The Senate divided fifty to fifty. Cheney, who as vice president presided over the Senate, cast the final vote necessary for passage.

  These reductions in taxes on dividends and capital gains created new pools of wealth for upper-income Americans and widened the gulf between rich and poor. The economy, which had been in recession during Bush’s first year in office, started to revive in 2003, but economists began to speak of a “two-tier recovery,” with a surge of new consumption of luxury goods and much more modest growth for middle- and lower-income Americans. Sales of $600-a-night luxury hotel suites and $5,000 Bulgari cocktail rings surged, the Wall Street Journal reported in 2004, as did yachts, custom-made boats, and Moët champagne.

  The longer-term impact was more important. Bush’s tax cuts meant that over the following decade vastly more money was in private hands, and correspondingly less was at the disposal of the federal government. The impact can be seen from the perspective of a single prominent family. Over the ten-year period from 2003 to 2012, the Bush tax cuts meant that the Walton family, owners of Wal-Mart, saved $3.9 billion in taxes they would have otherwise paid on dividends alone, with additional savings on capital gains and income taxes.

  Overall, the Bush tax measures reduced income taxes in the United States to their lowest levels since World War II. At the same time, the cuts ushered in a new era of spiraling budget deficits, in which the federal government was forced to borrow more and more money to pay for its operations. In fiscal year 2000, just before Bush took office, the government ran a surplus of $86 billion. By the fiscal year ending in September 2008, just before the onset of the financial crisis, the government’s deficit was $642 billion.

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  When he moved into the Oval Office, Bush decorated it with a series of paintings with Texas themes, including one of the Alamo, a reminder to visitors that his own self-image was different from that of his father. He walked with a jaunty bounce or swagger. At press conferences and in other public appearances, he sought to convey a sense of toughness. He spoke in an idiom that was part frontier Texas and part modern business executive.

  Some of Bush’s early initiatives moved American domestic policy decidedly to the right, pleasing the conservative constituencies that had supported his presidential campaign. He reversed several Clinton administration policies on environmental and social issues. Within two months after taking office, over the vehement objections of Christine Todd Whitman, whom he had appointed to run the Environmental Protection Agency, Bush reversed his own campaign pledge to regulate the emission of carbon dioxide by America’s power plants. In the process, he rejected the goals of the Kyoto Protocol on greenhouse gas emissions. In announcing his decision, Bush cited what he called “the incomplete state of scientific knowledge of the causes of, and solutions to, global climate change,” a statement that provided a stamp of presidential approval for years of challenges to scientists’ warning about greenhouse gases.

  Two days after taking office, Bush revived the so-called Mexico City policy on family planning, which required the U.S. Agency for International Development to deny funds to any organization, such as the Planned Parenthood Foundation, that supports abortion or provides counseling and information about it. The Mexico City policy had been adopted by the Reagan administration and rescinded by Clinton. (After Barack Obama succeeded Bush, he voided the policy once again.)

  Bush also created a new Office of Faith-Based and Community Initiatives inside the White House, providing a way for religious and spiritual groups to obtain support and federal funds for social services. Its first director, University of Pennsylvania professor John DiIulio, departed within eight months in a storm of controversy, asserting that Bush’s White House advisers paid more attention to the politics than to the substance of policy. Some Democrats charged that the program breached the separation of church and state; yet the program survived.

  Modern American presidents have a tendency, in their first year or two on the job, to pick a single issue and study it for months before taking action, consulting numerous experts and exhaustively examining every possible aspect to the question. The hope seems to be that amid the torrent of other decisions, there will be at least one instance in which a new president can satisfy himself that he has taken the time to get all the information he possibly can. For Bill Clinton, that issue was health care, and for Barack Obama it was the war in Afghanistan. For George W. Bush, it was stem-cell research.

  Two weeks after he was sworn in, Bush’s domestic policy advisers informed him that legal guidelines issued by the Clinton administration had cleared the way for new federal funding of research using embryonic stem cells and that it would be up to Bush to decide whether to go forward. Bush viewed this question as one that pitted the interests of scientific research against the concerns raised by religious and right-to-life groups. He conducted what amounted to a prolonged seminar on the various aspects of stem-cell research.

  Outside groups conducted intense lobbying campaigns for and against stem-cell research, so much so that Bush assigned Karl Rove as one of three staff aides to help him make a decision. Antiabortion and evangelical religious groups, a core element of Bush’s electoral base, pointed out that stem-cell research was conducted with destroyed human embryos and that these embryos represented a form of life, in the same way
as an aborted fetus.

  On the other side of the issue, those favoring open-ended funding for stem-cell research included scientific researchers at the National Institutes of Health and many other organizations and individuals devoted to finding cures for various diseases, such as juvenile diabetes, Alzheimer’s disease, and Parkinson’s disease. One of the most prominent proponents was Nancy Reagan, whose husband, the former president, suffered from Alzheimer’s disease; she wrote to Bush to urge that he support the “miracle possibilities” of stem-cell research.

  Bush spent more than six months on the stem-cell decision before announcing his decision and then did so in the unusual form of an evening television address on August 9, 2001. In the end, he fashioned what he thought was a compromise. He banned federal funding for research from new stem-cell lines but carved out an exception under which the government would pay for continuing research on a small number of lines of stem cells that had previously been obtained, through private financing, from destroyed embryos. Scientific groups were embittered by his decision, while some religious and right-to-life groups attacked Bush for allowing a limited amount of research to proceed.

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  On a single domestic issue, education, Bush followed the formula that he had used with considerable success as governor of Texas: find the most important Democratic legislative leader, work out an early compromise, and get a bill enacted with bipartisan support. The result was the program called No Child Left Behind, which would come to have an impact on a generation of schoolchildren across the country.