Citizens for Tax Justice July 7, 1997 (Modestly amending July 2 analysis)

Distributional Analysis of the Clinton June 1997 Tax Plan

Citizens for Tax Justice has completed a detailed 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 21% 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 about the same as now. 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 53%.
• 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⁾

Notes: Estimates include almost all of the items in the President’s proposal, including: the child credit; education credits and education savings accounts; capital gains tax cuts; estate tax cuts; corporate and other business income tax changes; and excise tax increases (primarily on airline tickets and cigarettes). In general, provisions were analyzed using the Institute on Taxation & Economic Policy Microsimulation Tax Model. Estimates for the small proposed estate tax reductions are based on Joint Committee on Taxation, “Methodology and Issues in Measuring Changes in the Distribution of Tax Burdens,” 1993. Estimates for the education tax credits and savings accounts (ESAs) are estimated based on the proposed statutory rules, distribution of college-age children, college attendance rates, etc. Child credits are shown as the average amounts over the next five years, at 1997 levels. All other provisions are shown fully effective at 1997 levels.

Citizens for Tax Justice, July 7, 1997

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

More CTJ Analysis of the '97 Budget Agreement Tax Bills

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