Citizens for Tax Justice

Revised July 31, 1997

Tax Plan Violates President's "Principles"

The tax plan agreed to by the administration and congressional GOP leaders fails at least two of the principles stated by President Clinton and Secretary of the Treasury Rubin as the minimum standards for Presidential agreement. According to an analysis by Citizens for Tax Justice the benefits of the tax plan are skewed towards the wealthy and its cost explodes in the next century. final1.gif - 4.2 K

"This is the kind of tax plan congressional Republicans have been proposing and the President has been attacking all year," said Michael Ettlinger, tax policy director for the group. "It's shocking that he appears to have agreed to it."

According to the CTJ analysis:

Almost half of the tax cut goes to the richest 5% of Americans.

The richest 20% get over 75% of the benefits.

The average tax cut for middle-income families and individuals will be less than $200 under the plan. The richest 1%, however, will pay over $16,000 less in taxes each year.

"The President has said he wants a fair tax bill. This plan completely fails the test of fairness," said Ettlinger.

In addition to being unfair, the tax plan is fiscally irresponsible, exploding in cost in later years. This violates another of the President's stated principles. "They're using every trick in the book to squeeze hundreds of billions of dollars of tax cuts into an $85 billion agreement," said Ettlinger. "By phasing-in the estate tax cuts and part of the capital gains tax cut, using backloaded IRAs, making outlandish assumptions and just plain changing the deal, they give the illusion of balancing the budget and giving a middle-class tax cut."

"The fact is that low-income families get nothing, middle-income families get a little and the wealthy are huge winners," said Ettlinger. "But in the end, the country loses because this plan makes budget deficits and drastic cuts in important government programs almost a certainty in the next century. This is a giant step backwards from the President's historic 1993 tax bill that did so much to reduce the deficit."

*Notes: In general, proposals were analyzed using the Institute on Taxation & Economic Policy Microsimulation Tax Model. Estimates for 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 estimates based on the proposed statutory rules, distribution of college-age children, college attendance rates, etc.. Child credits, education tax credits, corporate changes and excise tax hikes are shown as the average amounts over the next five years, at 1997 levels. Other provisions are shown fully effective at 1997 levels.

CTJ's analysis 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.

*Note: The Senate plan allegedly costs $80 billion over five years; the Clinton tax cuts cost about $70 billion over 5 years.
**Analysis of the plan agreed to by the president and congressional leaders is preliminary. It allegedly costs $91 billion. Additional Note: Actual annual costs do not match official estimates of five-year costs due to optimistic projections by the official estimators regarding capital gains, phase-ins of some provisions, and provisions that grow rapidly in future years. These factors mainly affect the House, Senate and Agreement tax plans. See separate distributional notes on each plan for more information on methodology.

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