The Ways and Means majority has released distributional tables on the Chairman's Mark that appear to show tax cuts concentrated on middle-income families. Nothing, however, could be further from the truth. To achieve this distorted result, it was necessary for Committee analysts to stray radically from widely accepted distributional analysis methodology.
To illustrate the fundamental problems with the tables distributed by the Ways and Means majority, Citizens for Tax Justice has compared the methodology described by the Joint Committee on Taxation in its 1993 Methodology manual with the methodology employed in the Ways and Means Committee distributional analysis of the Chairman's Mark for key provisions of the tax bill.
In 1993, the Joint Committee on Taxation issued its 123-page Methodology and Issues in Measuring Changes in the Distribution of Tax Burdens (JCT Manual). This document described the Joint Committee methodology for showing the distribution of tax changes by income level. The objective of the methodology was to:
(JCT Manual, p.4)
- present an accurate reflection of the economic burden (as opposed to statutory incidence) of the tax;
- maintain consistency in measurement and assumptions among tax proposals that are expected to have equivalent economic effects on taxpayers, regardless of whether they produce the same statutory liability; and
- make it possible for the distribution estimates of several unrelated proposals comprising a package to be summed to produce a distribution effect for the proposals as a package.
Unfortunately, the distributional tables put out by the Ways and Means majority on
the Chairman's Mark depart from these principles and the established Joint Tax
methodology in ways that significantly mislead the public about the distributional
consequences of the proposed tax legislation.
Estate Tax Cuts:
The JCT manual describes a methodology for distributing estate tax changes (JCT Manual p.66). In the example provided in the Manual, all of the estate tax change goes to those with annual incomes greater than $100,000 and most of it goes to those with annual incomes of more than $200,000. This is not surprising since only the most valuable 1.5% of estates are subject to the estate tax.
In the distributional tables on the Chairman's Mark the $29 billion estate tax cut (over
ten years) is not included at all.
Capital Gains Tax Cuts:
The JCT manual specifies that the distribution of capital gains tax cuts should be analyzed as if the law change does not cause taxpayers to realize additional capital gains, even though this approach somewhat understates the true benefit of a capital gains tax cut:
"Because taxpayers choose whether to realize gains, they must believe that selling their assets and paying capital gains taxes will make them better off than simply holding the asset. The increased taxes paid as a result of the increased realizations is not an increase in tax burden. . . . Because calculating the tax benefit on increased realizations is very difficult and because the benefit is likely to be small, the JCT staff ignores this benefit and distributes only the changes in tax burden on the capital gains that would have been realized in the absence of the tax cut. This convention has the effect, however, of underestimating the benefits of a tax cut on capital gains." (JCT Manual, pp. 46-47).
In the tables on the Chairman's Mark, enormous increases in realizations (about 50%
above current law) are assumed, but the taxes on the increased realizations are treated not
as added tax benefits, but as increased tax burdens. This approach--exactly the opposite
of the methodology outlined in the JCT Manual--has the effect of making it appear that
there are virtually no benefits derived from the proposed capital gains tax cuts.
Obviously, that is not true.
Corporate Income Tax Cuts
The JCT Manual states: ". . . the JCT staff assigns the burden of certain changes in the corporate tax to owners of corporate capital." (JCT Manual, p.49) This approach shows, correctly in our view, most of the benefit of corporate income tax cuts going to the wealthy.
In the tables on the Chairman's Mark, the corporate income tax cuts, which include
virtual repeal of the corporate Alternative Minimum Tax, are not included at all.
Citizens for Tax Justice, June 11, 1997
Back To Reports