Citizens for Tax Justice July 7, 1997

Final Senate Tax Plan Favors Rich

Wealthy are big winners, lower-income groups pay higher taxes

• The tax cuts are heavily tilted toward the very best-off taxpayers. Overall, 53% of the proposed tax cuts would go to the top 5% of all taxpayers. The average tax cut for the top 1% of taxpayers would be $15,866 a year. Tax reductions especially targeted to the well-off include the proposed reductions in capital gains taxes, estate taxes and corporate income taxes.
• Taxpayers in the bottom 40% of the income scale would receive no benefit from the proposed tax cuts. Instead, they would pay higher taxes, due to increased airline and cigarette taxes.
• The plan would cost far more than advertised, with costs growing especially rapidly in years past the "budget window." Although billed as an $80 billion net tax cut over five years, the plan actually will cost about $55 billion annually (in 1997 dollars) once it is fully phased in. As a result, the plan threatens to bust the budget not only in fiscal 2002 but to an ever-increasing extent in later years.

CTJ's analysis of the Finance Committee 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.

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.

Citizens for Tax Justice, July 7, 1997

Brief Description and Comments on the Major Provisions of the Senate-Passed 1997 Tax Plan

Explanation of Differences Between CTJ and Congressional Distributional Tables and Comparison with Treasury's Analyses

More CTJ Analysis of the '97 Budget Agreement Tax Bills

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