Which President Passed the Largest Tax Cuts?

In late 2017, President Trump signed the Tax Cuts and Jobs Act, putting into effect a complex series of tax reforms that impact families, businesses and the overall U.S. economy.

The Tax Cuts and Jobs Act reduced individual income tax rates and doubled the amount of the standard deduction while eliminating personal exemptions.

Not only was the top individual tax rate reduced from 39.6% to 37%, but the corporate tax rate also was reduced from 35% to 21%. Many individuals and businesses applauded the sweeping changes that resulted from the Tax Cuts and Jobs Act, and some may consider Trump’s overhaul of the tax code as one of the best ever in the history of the country.

However, Trump’s changes to the tax code were not the first in the history of this country. So, which presidents have cut taxes during their leadership? Let’s take a closer look.

In 1913, Congress ratified the 16th Amendment, allowing the government to have the power to “lay and collect taxes on incomes.” Later that year, Congress levied a 1% tax on net personal incomes above $3,000 and a 6% surtax on incomes above $500,000. In order to help finance World War One, in 1918, the top tax rate was raised to 77% for incomes in excess of $1 million (equivalent to almost $17 million in 2019 dollars).

This top marginal tax rate was reduced to 58% in 1922, 25% in 1925 and 24% in 1929 before being elevated back to 63% in 1932, during the Great Depression. Steady increases in the marginal tax rate led to a whopping 94% (!) top rate in 1944 as World War Two neared its close. Top marginal tax rates remained in the area of 90% until John F. Kennedy, who was the first President to aggressively push for tax cuts, succeeded in reducing the top rate to 70% in 1964.

JFK may have been the first, but he certainly wasn’t the only President to implement sizable tax cuts. In fact, Ronald Reagan, George W. Bush and Barack Obama all heralded in significant tax cuts during their presidencies.

Reagan’s Economic Recovery Tax Act of 1981 sharply reduced taxes on the rich, as the top marginal tax rate dropped from 70% to 50%, (before subsequently falling to 28% in 1986), consolidated tax brackets, and simplified the tax code for many – but was also roundly criticized providing numerous tax loopholes to corporations.

Later in his presidency, Reagan did an about-face and raised taxes while eliminating many loopholes and tax shelters in an effort to broaden the tax base and combat mounting budget deficits.

This made it easier for President Clinton to raise the top marginal tax rate in 1993 to 39.6%, helping to balance federal budgets during the latter part of the decade, and it remained at that level until George W. Bush implemented his tax cuts while increasing military spending.

In 2001, through the Economic Growth and Tax Relief Reconciliation Act, President George W. Bush reduced the highest marginal tax rate from 39.6% to 35% and cut corporate taxes, which many believe aided in increasing the pace of economic recovery and job creation.

This tax cut was performed in stages, with the rate dropping first to 39.1% in 2001, then to 38.6% in 2002, before reducing to 35% for the years 2003 to 2010. These tax cuts eventually saved taxpayers approximately $1.35 trillion, with most of the benefits going to high-income earners and families with children.

Bush’s tax cuts have been heavily criticized as well, however, with the New York Times editorializing that the Bush-era tax cuts became the single biggest contributor to the federal budget deficit, reducing revenues by approximately $1.8 trillion during 2002-2009.

Obama cut taxes in 2009, 2010 and 2013. In 2009, as part of the American Recovery and Reinvestment Act, $288 billion were cut prior to the $858 billion tax deal signed in 2010 that extended unemployment benefits through 2011 and Bush’s tax cuts through 2012.

These cuts all took place on the heels of the financial crisis, with Obama also implementing $55 billion of industry-specific tax cuts while reducing the payroll tax by 2%, helping to increase disposable incomes of workers. These cuts were funded in part by a stricter inheritance tax that levied a 35% tax rate on high net-worth estates.

Finally, in 2013, as part of the fiscal cliff package, Obama approved a permanent extension of the Bush tax cuts for married couples earning less than $450,000 and individuals earning less than $400,000.

Trump’s tax cuts include a lowering of the top marginal tax rate to 37% through 2025 while reducing the corporate tax rate to 21%, permanently. For this reason, the Trump cuts are considered more favorable toward businesses than to individuals. It is estimated that the 2017 Tax Cuts and Jobs Act will increase the deficit by $1 trillion over the next ten years while increasing growth by approximately 0.7% annually, helping to offset some of the revenue lost from $1.5 trillion in tax cuts.

The impact on individuals varies according to bracket and other factors. High income earners benefit the most from the Trump tax cuts, as those earning in the top 5% will net out an approximate 2.2% gain in after-tax income. Meantime, a larger exemption to the estate tax will benefit those who inherit wealth.

Furthermore, for those individuals whose itemized deductions would have been less than the new, larger standard deduction, there will be a reduction of tax liability. Additionally, young people who lack health insurance but are generally healthy will benefit from the elimination of the ObamaCare tax on those who do not have health insurance.

However, homeowners and those with larger families may be hurt by the reduction in mortgage interest expenses that can be claimed as deductions, as well as by the elimination of personal exemptions. Finally, those who are self-employed or own their own business stand to benefit from a 20% deduction on qualified income.

Tax rates under Biden’s plan that was formalized in the Build Back Better Act will create tax cuts for nearly all income groups in 2022. According to estimates from the Urban-Brookings Tax Policy Center, the bottom 80% of Americans should save an average of $700 dollars on their taxes.

So, how would this feat be possible? That’s because taxes under Biden will increase for the top 1% of households. They will pay an estimated extra $55,000. The top elite 0.1% will pay an additional $585,000.

This tax strategy clearly seeks to target the very wealthy while limiting the tax burden for citizens that don’t have access to millions (or billions). Unless you have a very sizable income, then you’ll likely be one of the citizens that gets to enjoy a tax break, cut, or credit. Learn more about the increased taxes on the wealthy and the tax cuts to other citizens below.

Extending the Earned Income Tax Credit Enhancements

The American Rescue Plan helped enhance the earned income tax credit for some citizens, and the Build Back Better Act is extending those for 2022. For the year, the maximum credit will go up from $543 to $1,502 for eligible citizens.

Extending Child Tax Credits

Another way that many households will save on their taxes this year is from an extension of the child tax credits. Throughout 2022, the child tax credit of $2,000 will go up to $3,000 for most children. For youngsters who are under 5, parents will receive up to $3,600. The phase out for the additional child tax credits start when the head of household’s income goes above $112,500.

Educational Tax Cuts

President Biden will provide tax cuts and breaks for college students, too. Pell grants won’t count towards a student’s gross income, and tuition expenses won’t get reduced by the Pell grant, either. These tax breaks will also get extended to a formerly ineligible group – college students who have been convicted of a felony drug offense.

On top of these tax cuts, there have been proposals regarding federal student loan debt. While no legislation is in place yet, President Biden has expressed a desire to cancel or forgive up to $10,000 in student loan debt per borrow.

Tax Cuts for Energy Efficient Individuals and Businesses

Small business taxes under Biden can get reduced if the business opts to use clean energy. If you make energy efficient improvements to your home or business, then you can earn a tax credit of up to 30%. You could also go for other green options like using a bicycle to commute, purchasing an electric bicycle, or buying a plug-in electric car.

Small Businesses: Somewhere In-Between

In 2021, many news outlets touted the claim that 97% of small businesses would be exempt from Biden’s tax plan. Despite those claims, small business taxes under Biden will increase for an estimated 2-3 million small businesses. That’s because a corporate tax hike will be going up from 21% to 28%. For mid-ranged businesses, the tax hike is even higher going from 23.8% to 43.4%!

Small business taxes under Biden, according to the White House itself, will get a “tax cut”. What the Presidential office means, though, is that they’ll see tax cuts through the child credits and increased subsidies. Neither of those policies are specifically meant to impact small businesses.

Surtaxes on Millionaires and Billionaires

That minor tax hike isn’t the only one that the wealthy will experience thanks to the Build Back Better Act. The legislation also puts a surtax on millionaires and billionaires that will equal about 5% of adjusted gross income for individuals making anywhere from $10 million to $25 million. Citizens who make more than $25 million would be subject to an 8% surcharge.

Extra Surtaxes on Net Investment Income

That’s not the only surtax the wealthy will face, either. They’ll be hit with an extra 3.8% surtax on net investment income, which includes passive rents, annuities, royalties, taxable interest, and dividends. This 3.8% surtax will only apply to filers who earn over $200,000 or households that make over $250,000. On top of this surcharge, capital gains tax under Biden will be even higher.

Wealthy Inheritance and Estate Tax

The estate tax under Biden changes a few things. Previously to the changes, citizens could transfer up to $11.7 million to their descendants before facing the federal estate or gift tax. That figure will drop down to $3.5 million of excluded property and assets. Combining the estate tax and capital gains tax would result in about a 61% tax rate on inherited wealth! That massive tax rate would be the highest in about 100 years.

Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.

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