Now that the President and the congressional leadership have agreed to include tax cuts in their budget plan, the question is: who's going to get the break?
The answer to this question will largely depend on which of several tax-cutting measures under consideration lawmakers choose to adopt.
One would think that the $500 child tax credit Americans have been promised for three years would be at the top of the list. It gives the biggest benefit to the greatest number of people of any of the options on the table. It's also the most straightforward--families get $500 off their federal income tax bill for each dependent child. The latest version of the credit would cost $109 billion over five years, a little less than the likely total tax cut amount (between $115 and $135 billion is the agreed-upon total). It ought to be a done deal, right?
Maybe it ought to be, but that certainly doesn't seem to be the current plan. Instead, lawmakers intend to offer a much smaller kids credit and use the rest of the money for tax cuts for those who need them the least.
Leading the way are tax breaks for capital gains. Capital gains are income from the sale of appreciated stocks, bonds and other capital assets and are heavily concentrated with the wealthy. More than 60 percent of a capital gains tax cut would go to the richest one-percent of households. And only nine percent of taxpayers would get a break each year.
The child tax credit is also being sacrificed for estate tax reductions. Sometimes referred to as the inheritance tax, the estate tax is imposed on the estates of the deceased. The tax currently applies only to the largest 1.5 percent of all estates, those worth more than $600,000 (effectively $1.2 million for married couples). Proponents of cutting the estate tax argue that it's necessary to provide relief to farmers and small business people. But there are already significant estate tax breaks for family-owned businesses. Besides, only one out of every 25 farmers leaves a taxable estate and estate taxes on farms account for only 0.3% of total estate tax payments. Small businesses account for only a tenth of estate tax revenue, and most of that comes from estates worth more than $10 million.
In any event, the tax cuts being discussed are not targeted to family businesses. In fact, family farms and businesses are being used as a sympathetic face for a rather unsympathetic argument--that people inheriting estates worth over $600,000 are in desperate need of a tax break.
Finally, there's the President's college tuition tax breaks. The biggest benefits of these serve families of students who are not fully eligible for financial aid, whose kids go to expensive schools and who are in above average tax brackets. In other words, people who are relatively well-off already. The fact is that upper-middle class families, and their college-educated children, are not the most financially strapped segment of our population.
Cutting taxes is not the right way to balance the budget. But if a tax cut must be part of the deal, let's do it in a way that gives the American people their money's worth. Otherwise, average families will lose government services, but won't get the offsetting benefit of a tax cut. Shortchanging the child tax credit and giving the biggest tax breaks to those who need them the least is not a good deal for America.
Michael Ettlinger is Tax Policy Director for Citizens for Tax Justice. Citizens for Tax Justice is a Washington, D.C. based research and advocacy organization working for a fairer federal, state and local taxation.
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