Bush Signs JGTRRA - Dividend and Capital Gains Rates Slashed to 15%, Massively Favoring Investment Income Over Wages

On May 28, 2003, President George W. Bush signed the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) into law, completing the second phase of the Bush tax cuts and fundamentally restructuring taxation to favor investment income over wages. The legislation reduced the long-term capital gains tax rate from 20% to 15% (and to 5% for taxpayers in the 10-15% income tax brackets, dropping to 0% in 2008). Most dramatically, JGTRRA lowered the top individual tax rate on qualified dividends from 38.6% to 15%, ensuring dividends and capital gains would be taxed identically at preferential rates far below ordinary income. For taxpayers already in the top four income tax brackets, both capital gains and dividend income became subject to just 15% taxation, while their wage income was taxed at rates up to 35%. This created a two-tiered tax system explicitly favoring the wealthy, who derive most income from investments rather than wages. The legislation accelerated tax changes from the 2001 EGTRRA that had been scheduled for gradual implementation, and increased the exemption amount for the Alternative Minimum Tax to prevent it from capturing more taxpayers. The preferential 15% rates were initially set to expire in 2008 but were extended through 2010 by the Tax Reconciliation Act signed by Bush on May 17, 2006, and later made largely permanent in 2012. Combined with EGTRRA, the Bush tax cuts added approximately $1.5 trillion to the national debt over 2002-2011 according to the Congressional Budget Office, excluding interest costs. The cuts overwhelmingly benefited high-income taxpayers: the top 1% received an average tax cut exceeding $570,000 between 2004-2012, while working-class Americans received minimal benefit since they derive little income from dividends or capital gains. JGTRRA institutionalized the principle that investment income—which flows disproportionately to the wealthy—should be taxed at dramatically lower rates than wage income, creating powerful incentives for tax gaming, compensation restructuring, and the ‘carried interest loophole’ that allows private equity and hedge fund managers to characterize compensation as investment returns. This preferential treatment has no economic justification: it does not measurably increase investment or growth, but it does dramatically reduce tax progressivity and exacerbate wealth inequality.