1. Child credits:
There are 81 million dependent children in America. To give a $500 tax credit for each of them would cost $40.5 billion a year. To find out how far from that the Ways and Means Committee's proposed child credit actually is, try the following arithmetic:
Take the Committee's 5-year revenue estimate of the cost of its kids credit
Divide by 5, to get the annual amount of the credit
Divide by 81 million, to get the annual credit per kid
Example: $70 billion 5-year estimate
Divide by 5: $14 billion cost per year
Divide by 81 million: $173 per kid per year
Click here for more on the shrinking child credit.
2. Capital Gains:
Income taxes on capital gains (profits from selling stocks, bonds, etc.) now amount to $50 billion a year (even though the top tax rate on capital gains is only 28%, well below the regular top rate of 39.6% on wages, interest, etc.). Most of that $50 billion is paid by the best-off 1 percent of all taxpayers.
Republicans have called for slashing the top capital gains rate to less than 20%, plus indexing gains for inflation. Together, that would mean about a 15% top tax rate.
Simple arithmetic shows that a capital gains tax cut of this magnitude would cost more than $20 billion a year, or upwards of $100 billion over 5 years. Sure, there would probably be some increased selling of stocks and bonds, but even so the 5-year tax cut would still be $70 billion or more.
So if the Ways and Means Committee scores its capital gains tax cuts at a far lower figure--say, around $30 billion over five years--you can be sure that it cooked the books.
Click here for more on capital gains book-cooking.
3. Distributional Tables:
With its expected big cuts in capital gains and estate taxes, the Ways and Means tax bill will inevitably be tilted towards the well-off. But the Committee's distributional tables will try to tell a different story. Here are three things to look for in those tables:
Estate taxes: Do the distributional tables include the effects of the estate tax cuts? Or do they simply ignore them?
b. IRAs: Do the distributional tables count the IRA benefits that go to middle-income families, but leave out the IRA tax cuts for the well-off?
Capital gains: Do the tables treat a portion of the capital gains tax cuts as tax increases? (Really, this apparently is the plan!)
Click here for more on distributional table abuses.
4. For more information on these and other ways the Ways and Means Committee is likely to cook the books on the 1997 tax bill, click here.
5. Check back here soon for our estimates of the true cost and distributional effects of the Ways and Means tax bill.