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Latest Senate GOP Tax Plan Would Increase Taxes on Most |
Earlier this week, House Speaker Newt Gingrich (R-Ga.) suggested that Republicans might be well advised to back away from their cherished upper-income tax cut hopes and instead focus solely on balancing the federal budget. A few days later, Senate Finance Committee Chairman William Roth (R-Del.) offered an unusual alternative to Speaker Gingrich's approach: Roth proposes to pay for a portion of the GOP's targeted tax cut plan by raising income taxes across the board and by reducing Social Security benefits.
The legislation proposed by Chairman Roth on March 18 would permanently reduce inflation indexing for both tax and spending purposes by 1.1 percentage points a year. Inflation indexing applies to tax brackets, personal exemptions, standard deductions, the earned income tax credit and various other provisions of the tax code. It also applies to Social Security and other federal retirement benefits, as well as certain low-income programs such as Supplemental Security Income for poor aged and disabled Americans.
According to the Congressional Budget Office, Roth's proposed indexing reduction would increase income taxes by $22.8 billion annually in fiscal 2002, the year the federal budget is supposed to be balanced, and would increase taxes by more than double that amount annually by fiscal 2006. The indexing cut would also reduce spending by $27.5 billion in fiscal 2002, mainly through a 5 percent reduction in annual Social Security benefits. By fiscal 2006, CBO says, the Social Security cut would also be approximately double the 2002 figure.
Citizens for Tax Justice has analyzed the distributional effects of the new Roth tax plan,
including both its tax cuts and its tax increases, using the Institute on Taxation and Economic
Policy's Microsimulation Tax Model. The primary tax cut provisions include a $500 unindexed
child credit, a 50% exclusion for personal capital gains income, plus indexing of gains for
inflation, a corporate capital gains tax cut, a sharp reduction in estate taxes and expanded
Individual Retirement Accounts for upper-income people. To offset part of the cost of these
proposals, Roth has proposed to increase taxes, not only by reducing tax indexing, but also by
eliminating the proposed child credit for 1997.
Low and Moderate Income Groups Would Pay Higher Taxes. The Very Rich Would Pay Far Less
CTJ's analysis of the tax provisions of Roth's plan finds that its new burdens are concentrated on taxpayers in the low to middle portion of the income scale, while its new benefits are concentrated at the top:
Despite Huge Net Cost of Tax Cuts, Losers Far Outnumber Winners
Although the Roth plan contemplates a huge net tax cut--amounting to $51 billion annually at 1997 levels--it still would increase taxes on far more taxpayers than would get tax cuts. Focusing on the three major elements of the Roth plan--the personal capital gains tax cuts, the child credit and the reduction in indexing, CTJ's analysis finds that:
"Senator Roth's new strategy of explicitly linking his proposed high-income tax cuts to tax increases for most Americans and significant reductions in Social Security benefits is a forthright statement of his agenda," noted CTJ director Robert S. McIntyre. "One can only wonder whether a majority of the American public will find such an agenda attractive."
A TABLE SHOWING THE DISTRIBUTIONAL EFFECTS OF THE ROTH PLAN IS ATTACHED
Citizens for Tax Justice is a nonpartisan research and advocacy group based in Washington.
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