| Note: CTJ has released more up-to-date data on the impact of the Bush plan. To see the most recent estimates, click here. |
GOP presidential candidate George W. Bush has scaled back his $2.2 trillion tax cut plan by about $300 billion over ten years, according to new details recently published by the congressional Joint Committee on Taxation. The newly-described changes would sharply lower the tax cuts for taxpayers in the top fifth of the income scale--except for the top one percent of taxpayers. The top one percent, whose tax cut is lowered only slightly, would actually get a noticeably larger share of the total Bush tax cuts than under the originally-described plan.
The revised Bush tax plan would reduce revenues by almost $1.6 trillion over ten years, costing a total of $1.92 trillion, including $355 billion in added interest on the national debt.
Under the revised plan, a major portion of the income tax cuts people making between $65,000 and $319,000 would have expected from the Bush plan are illusory. Although Bush proposes to reduce the current 28% and 31% income tax rates to 25%, his campaign now says that much of that change will be obviated by retaining the 26% and 28% "alternative minimum tax" rates. The alternative tax is paid if it exceeds the regular tax due.
Currently about a million taxpayers pay the alternative tax. Under Bush's revised plan, the number would jump to more than 20 million taxpayers by the year 2010.
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Effects of George W. Bush’s Revised Tax Plan Including a Vastly Expanded Alternative Minimum Tax & Other Recent Changes (Annual effects at 1999 income levels, $-billions except averages) |
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| Revised Bush Plan | Compare: Original Plan | |||||
| Income Group | Income Range | Average Income | Average Tax Cut | % of Total Tax Cut | Average Tax Cut in Original Plan | % of Total in Original Plan |
| Lowest 20% | Less than $13,600 | $ 8,600 | $ –42 | 0.8% | $ –43 | 0.6% |
| Second 20% | $13,600–24,400 | 18,800 | –187 | 3.5% | –203 | 3.0% |
| Middle 20% | $24,400–39,300 | 31,100 | –453 | 8.4% | –501 | 7.4% |
| Fourth 20% | $39,300–64,900 | 50,700 | –876 | 16.2% | –1,043 | 15.4% |
| Next 15% | $64,900–130,000 | 86,800 | –1,447 | 20.1% | –1,908 | 21.1% |
| Next 4% |
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183,000 | –2,253 | 8.4% | –5,340 | 15.7% |
| Top 1% |
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915,000 | –46,072 | 42.6% | –50,196 | 36.9% |
| ALL | $ 50,800 | $ –1,070 | 100.0% | $ –1,349 | 100.0% | |
| ADDENDUM | ||||||
| Bottom 60% | Less than $39,300 | $ 19,500 | $ –227 | 12.6% | $ –249 | 11.0% |
| Top 10% | $92,500 or more | 218,000 | –6,410 | 59.4% | –8,367 | 61.6% |
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The revised Bush plan costs $1.8 trillion over ten years, including interest, compared to $2.2 trillion for the original plan. Figures reflect the latest revisions to the Bush plan, including: a vastly expanded Alternative Minimum Tax that by 2008 will affect more than half of all taxpayers earning $65,000 or more (more than three-fifths by 2010), compared to only four percent today; a narrower 10% bottom tax bracket than previously advertised (because of no indexing until 2007); expanded child credits for parents making more than $200,000; a lower dollar cap on the second-earner deduction (because of no indexing); and a limit on the charitable deduction for non-itemizers. Estimates exclude expanded Education Savings Accounts. Tax changes are shown fully effective at 1999 levels. Source: Institute on Taxation and Economic Policy Tax Model. |
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"Bush Tax Calculator" hugely overstates tax cuts, as revised, for many families
Because of the recent changes to the plan, the revised Bush tax cuts are inconsistent with the tax cuts advertised on Bush's website (www.georgewbush.com) for many families. For example, a one-earner couple with two children earning $80,000 (in 1999 dollars) and taking the standard deduction is supposed to get an income tax cut of $2,162 according to the "Bush Tax Calculator." But under the revised plan, in the first year that the Bush income tax cuts would be fully effective (2006), such a couple's tax cut would be $1,602. By the fifth year of the Bush tax cuts, the couple's tax cut would drop to only $760. Thus, during the first five years, the "Bush Tax Calculator" overstates the couple's tax cut under the Bush plan by 35% to 184%.
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Examples of How the Bush Tax Calculator Overstates the Bush Tax Cuts A two-child couple earning $80,000 (in 1999 dollars) in the first 5 years the Bush tax cuts are fully in place |
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| 2006 | 2007 | 2008 | 2009 | 2010 | ||||||
| Now | Bush | Now | Bush | Now | Bush | Now | Bush | Now | Bush | |
| Regular tax— | ||||||||||
| Adj. Gross Income | $80,000 | $80,000 | $80,000 | $80,000 | $80,000 | |||||
| Personal Exemptions | 11,000 | 11,000 | 11,000 | 11,000 | 11,000 | |||||
| Standard Deduction | 7,200 | 7,200 | 7,200 | 7,200 | 7,200 | |||||
| Taxable income | 61,800 | 61,800 | 61,800 | 61,800 | 61,800 | |||||
| Tax before credits | 11,707 | 10,640 | 11,707 | 10,640 | 11,707 | 10,640 | 11,707 | 10,640 | 11,707 | 10,640 |
| Child credits | 840 | 1,680 | 820 | 1,640 | 800 | 1,600 | 780 | 1,560 | 760 | 1,520 |
| Tax after credit | 10,867 | 8,960 | 10,887 | 9,000 | 10,907 | 9,040 | 10,927 | 9,080 | 10,947 | 9,120 |
| Alternative tax— | ||||||||||
| Taxable income | 61,800 | 61,800 | 61,800 | 61,800 | 61,800 | |||||
| Add back exemptions | 11,000 | 11,000 | 11,000 | 11,000 | 11,000 | |||||
| Add back std. ded. | 7,200 | 7,200 | 7,200 | 7,200 | 7,200 | |||||
| Taxable bef. exemption | 80,000 | 80,000 | 80,000 | 80,000 | 80,000 | |||||
| Alternative exemption | 37,900 | 36,900 | 36,000 | 35,200 | 34,300 | |||||
| Alt. taxable income | 42,100 | 43,100 | 44,000 | 44,800 | 45,700 | |||||
| Alt. tax before credits | 10,946 | 11,206 | 11,440 | 11,648 | 11,882 | |||||
| Less child credits | 840 | 1,680 | 820 | 1,640 | 800 | 1,600 | 780 | 1,560 | 760 | 1,520 |
| Alternative tax | 10,106 | 9,266 | 10,386 | 9,566 | 10,640 | 9,840 | 10,868 | 10,088 | 11,122 | 10,362 |
| Income tax (higher of regular or alternative) | 10,867 | 9,266 | 10,887 | 9,566 | 10,907 | 9,840 | 10,927 | 10,088 | 11,122 | 10,362 |
| Bush tax cut | –1,601 | –1,321 | –1,067 | –839 | –760 | |||||
| Bush Tax Calculator Says | –2,162 | –2,162 | –2,162 | –2,162 | –2,162 | |||||
| Tax Calculator Overstates Cut By | +35% | +64% | +103% | +158% | +184% | |||||
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All figures are in 1999 dollars, including the rules governing the child credit and the alternative minimum tax (there is no indexing for inflation of these provisions under either current law or the Bush plan). Figures assume extension of the current rule allowing the child credit against the alternative tax under both the Bush plan and current law, based on past congressional practice. Without this assumption, the Bush tax calculator would still overstate the Bush tax cuts by 29% to 42% for couples making $80,000, over the first five years that the Bush plan is fully in effect. Note: The Bush tax calculator assumes use of the standard deduction in all of its examples, even though that is not typically the case for couples making more than about $60,000 a year. |
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Changes from the Original Bush Tax Plan (May 2000):
1. Narrower 10 Percent Tax Bracket. The new 10 percent tax bracket, advertised as applying to the first $12,000 in taxable income for couples, $6,000 for singles and $10,000 for single parents in 1999 dollars, will actually not reach those levels in nominal dollars until 2006. As a result, income eligible for the 10 percent brackets will actually be 16 percent lower than originally promised (in constant dollars): $10,100 for couples, $5,050 for singles, and $8,400 for single parents.
2. Limits on the charitable deduction for non-itemizers. The charitable deduction for non-itemizers will be limited to $7,200 for couples, $4,300 for singles and $6,350 for single parents (in 1999 dollars, indexed for inflation) when the deduction is fully in place in 2006. (This change was made after it was revealed that the original proposal would have provided a large tax cut to George W. Bush had it been in effect for tax year 1998, because his extremely high income that year caused him to lose most of his itemized charitable deductions under current law.)
3. Unindexed second-earner deduction. The $3,000 cap on the 10 percent second-earner deduction is in nominal dollars, not indexed for inflation. (This was not clear in the original proposal.) Thus, by the time the deduction is fully effective in 2006, the maximum will be only $2,500 in 1999 dollars. By 2008 the maximum deduction in 1999 dollars will be only $2,400. The deduction will continue to decline in real terms in succeeding years.
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Description of How the “Bush Tax Calculator” Miscomputes Tax Cuts One-earner, 2-child married couple earning $80,000 in 1999 dollars |
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| (In 2008 — the mid-point of the first five years the tax cuts are fully in effect) | |||||
| What the Bush Tax Calculator Says | Accurate Calculations (based on revised plan) | Notes on the Bush Tax Calculator’s Errors | |||
| Current Law | Bush Tax Plan | Current law should be | Bush plan should be | ||
| Regular income tax before credits | 11,707 | 10,545 | 11,707 | 10,640 | Ignores inflation’s effects on Bush’s proposed $12,000, 10% tax bracket. The Bush 10% rate does not take effect until 2006 and thereafter, when it will apply to the first $10,100 in taxable income for couples, in 1999 dollars. |
| Child credits | 1,000 | 2,000 | 800 | 1,600 | Ignores inflation’s effects on the child credit under both current law and Bush’s plan. Bush’s plan does not double the credit until 2006. (The unindexed credit falls in real terms under both current law and Bush’s plan). |
| Regular income tax after credits | 10,707 | 8,545 | 10,907 | 9,040 | Understates regular tax (especially under Bush) due to above factors. But failure to compute the alternative tax (see below) makes these errors mostly irrelevant. |
| Alternative tax, if applicable | Not Computed | Not applicable | 9,840 | Ignores the fact that the alternative tax will apply under the Bush plan, because the plan fails to reduce the alternative tax rates in line with the cuts in the regular tax rates. (In addition, because the alternative exemption is not indexed, it falls in real terms, from $45,000 in 1999 to $36,000 in 2008.) | |
| Higher of regular or alternative tax | 10,907 | 9,840 | |||
| Bush tax cut | $ –2,162 | $ –1,067 | Bush Tax Calculator overstates Bush tax cut by 103%. | ||
4. Slower phase-out of the child credit at high income levels. The doubled child tax credit will be phased out at a two percent rate rather than five percent. Since the phase-out starting point is raised to $200,000, that means, for example, that partial credits will be available to families with two children until income exceeds $300,000. (As under current law, the child credit and the phase-out rules are not indexed for inflation.)
5. Major Offset to Apparent Tax Cuts from the Alternative Minimum Tax. Most important, the 26 and 28 percent tax rates for the alternative minimum tax--which is paid if higher than the regular income tax--will not be reduced in line with the reductions in the regular tax rates. (Information on Bush's website, including the "Bush Tax Calculator," strongly implies that the minimum tax rates would be reduced under the Bush tax plan.)
As a result of the decision not to adjust the alternative tax rates (along with the fact that the alternative tax exemptions are not indexed for inflation under both current law and the Bush plan), many taxpayers whose income taxes would apparently go down substantially under the Bush plan due to his reduction in the 28 and 31 percent regular tax rates to 25 percent will lose much or most of their promised tax cuts. By 2010, close to 20 million taxpayers will owe the alternative tax under the Bush plan, compared to only about a million taxpayers today. In addition, millions of other taxpayers will have to fill out the complicated alternative tax form along with the regular tax forms to determine if the alternative tax applies to them.
Click here to see more examples of how the alternative minimum tax and inflation would affect the Bush tax cuts in 2008.
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