Which President is Best for Taxes?

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.

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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