Citizens for Tax Justice For release on July 2, 1997

Distributional Analysis of the Clinton June 1997 Tax Plan

Citizens for Tax Justice has completed a detailed, preliminary distributional analysis of the effects of the tax cut plan proposed by President Clinton on June 30, 1997. The analysis finds that the Clinton plan differs sharply from the tax bills recently passed by the House and Senate, with far more of the tax cuts under the Clinton plan going to the middle income ranges, and far less going to the highest income taxpayers.

• About 57% of the net Clinton tax cuts would go to families in the middle and fourth income quintiles. This compares to only 18% under the House tax plan and 22% under the Senate plan.
• Taxpayers in the bottom 40% of the income scale would receive, on average, no benefit from Clinton's proposed tax cuts. Those in the bottom 20% would pay higher taxes, and those in the second 20% would pay slightly more. The small income tax cuts in these groups are more than offset by higher excise taxes, primarily on airline tickets and cigarettes. In this regard, the Clinton plan is similar to its congressional counterparts.
• The top 5% of taxpayers would receive 13% of the tax cuts under the Clinton plan. In contrast, the House plan offers 56% of its tax cuts to the top 5%, and the Senate plans offers 51%.
• Unlike the congressional tax plans, the Clinton plan does not threaten to bust the budget after 2002. The House and Senate tax plans threaten to bust the budget not only in fiscal 2002 but to an ever-increasing extent in later years. Because the Clinton plan lacks the back-loaded, fast-growing provisions of the House and Senate plans and does not rely on optimistic estimates regarding capital gains taxes, the Clinton plan does not share this defect.

CTJ's analysis of the Clinton tax plan was conducted using the Institute on Taxation and Economic Policy's Microsimulation Tax Model. The ITEP Model, based on a very large sample of tax returns, census data and other data, is similar to the tax models used by the congressional Joint Committee on Taxation and the Treasury Department. The methodological approach used in the ITEP model is very similar to the methodology outlined in the Joint Committee on Taxation's "Methodology and Issues in Measuring Changes in the Distribution of Tax Burdens," 1993.

CTJ's analysis differs from Treasury's analysis of the Clinton plan primarily because CTJ's analysis includes a number of items excluded from Treasury's analysis. These items include the small proposed estate tax and corporate tax cuts, and the proposed excise tax increases.⁽¹⁾

Brief Description of and Comments on the Major Provisions of the President's June 1997 Plan

Average Tax Cuts by Income Level

Explanation of Differences Between CTJ and Congressional Distributional Tables and Comparison with Treasury's Analyses

1. Earlier CTJ analyses of congressional tax plans differ from figures released by the chairmen of the tax-writing committees, because the congressional tables explicitly (albeit weirdly) leave out almost all of the high-income tax cuts.

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