To mask such glaring inequality, Republicans inaugurated the tax cut with an across-the-board rebate. The waitress would get a $300 check, along with everyone else from Warren Buffett on down. But in reality, the tax cuts were backloaded with benefits for the wealthy. In the first year of the deal, the top one percent would pocket just seven percent of the tax cuts – but by the time the cuts were set to expire in 2010, the rich would be reaping more than half of the windfall. What's more, the cuts were nefariously designed so that small-business owners and upper-middle-class professionals – primarily those earning between $200,000 and $500,000 a year – would see as much as three-quarters of their tax break eroded by the Alternative Minimum Tax, a levy Congress originally intended to keep rich people from cheating on their taxes.
Every year since the Bush tax cuts were approved, Congress has passed a multibillion "patch" to prevent this politically potent group of professionals from being denied their tax breaks. But at the time, Cheney used the money "saved" by the AMT claw-back to finance another favor exclusively for the rich: a series of cuts to the estate tax culminating in a one-year abolition, set to take effect in 2010. Rejecting a less costly bargain proposed by Democrats that would have provided a permanent escape from estate taxes for all but the richest of the rich, Republicans instead demanded a more expensive plan catering to the wealthiest 0.25 percent of all estates.
In May 2001, Republicans in the House voted in lock step to approve the Bush tax cuts, which cleared the Senate with the support of 45 Republicans and 12 conservative Democrats.
But then reality intervened. The bursting of the dot-com bubble, followed by the attacks of September 11th, tipped the economy headlong into recession. Rather than reversing course, however, Republicans rallied around another tax giveaway for the rich. That October, a bill passed by the House – and endorsed by Bush – not only called for eliminating a law requiring that tax-dodging corporations pay at least something in taxes, it ordered rebate checks to be cut to corporate giants for their past taxes. Under the bill, 16 companies of the Fortune 500 would have each received $100 million or more – including $1.4 billion for IBM, $671 million for GE and $254 million for Enron. Democrats in the Senate ultimately sank the bill, producing a stimulus package that extended unemployment benefits for the middle class and awarded tax incentives to corporations for new investments.
But Republicans kept their eyes on the prize. The following year, after the GOP regained control of the Senate and expanded its majority in the House, Cheney immediately pushed forward with an even deeper tax cut for the wealthy that O'Neill today describes as "an atrocity."
"We won the midterms," the vice president told O'Neill at the time. "This is our due."
By that point, any economic rationale for cutting taxes had vanished. September 11th, the recession and the 2001 tax cuts had plunged the nation $158 billion into the red. The mirage of the $5.6 trillion surplus had vanished – replaced with a forecast that America would rack up some $3 trillion in debt by 2012. But rather than put the brakes on tax cuts, as a trigger mechanism might have done, Cheney was determined to accelerate them, so the rich would get their money even sooner. To further reward the wealthiest, Cheney also wanted to slash taxes on capital gains and corporate dividends, with half of the money going to the top one percent.
To secure the new tax cuts, however, Cheney would first have to overcome opposition not only from Alan Greenspan, but from some of Bush's top advisers. The Fed chair had personally presented Cheney with a 20-page econometric analysis showing that soaring deficits caused by the tax cuts would sink long-term growth. Instead of communicating Greenspan's alarm to Bush, Cheney tasked a deputy named Cesar Conda to draft a memo disputing the study. Conda, a former tax lobbyist, blithely dismissed the projections of the Fed's senior economist as "completely wrong."
In November 2002, at a meeting in the White House, the president and his top economic advisers packed tightly around a mahogany table in the Roosevelt Room. With the administration's own forecasts showing that the economy had already regained its footing, one after another of Bush's deputies sounded the alarm about the dangers of a new tax cut. "This burns a big hole in the budget," deputy chief of staff Josh Bolten told the president. "The budget hole is getting deeper," added Daniels, "and we are projecting deficits all the way to the end of your second term." O'Neill warned the president that a "tax cut that benefits mostly wealthy investors" could imperil the budding prosperity. "With the economy already improving, this could cause an unnecessary boost," he said. "That's how you get a bubble." Entertaining the chorus of doubters, Bush himself voiced qualms about more cuts for the rich. "Won't the top-rate people benefit the most?" he asked. "Didn't we already give them a break at the top?"
But Cheney was having none of it. When O'Neill warned Bush that America was headed for a "fiscal crisis," the vice president, sitting at the Treasury secretary's right elbow, dismissed him midsentence by citing the ultimate champion of Republican tax cuts: "Ronald Reagan proved that deficits don't matter, Paul."
A true student of Reagan would have understood that 2002 was the moment for a tax increase. When his 1981 tax cut overshot the mark, Reagan had put aside ideology and raised taxes, putting the needs of the country above the desires of the wealthy. Bush's father had also raised taxes to avoid passing massive deficits on to future generations. Moreover, the Bush administration had already committed the country to a costly war in Afghanistan, and was on the brink of invading Iraq. Historically, Republican and Democratic administrations alike had met the financial burdens of war by raising taxes. But this was a new Republican Party, one determined to aid the rich even as it sent the military budget soaring. As House Majority Leader Tom DeLay would soon declare, "Nothing is more important in the face of a war than cutting taxes."
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