Bush's Tax Cuts Don't Just Benefit The Rich

by Mike Godfrey, Tax-News.com, Washington

10 May 2006

Charles Grassley, the US Senate’s chief tax writer has countered claims that the $70 billion tax bill agreed by House and Senate negotiators recently will only benefit relatively few, wealthy investors.

New estimates from the Urban Institute-Brookings Institution Tax Policy Center (TPC), the liberal think-tank, apparently show that the tax-cut reconciliation package will offer virtually no benefits to low- and moderate-income households, but will shower high-income households with very large tax cuts.

The main features of the tax package include a two-year extension to the dividend and capital gains tax cuts and a one year patch to stem the growing reach of the Alternative Minimum Tax, among other measures designed to benefit businesses.

However, according to the TPC report, the 20 percent of households in the middle of the income spectrum would receive an average of just $20 in tax benefits from the package if it were fully in force in 2006. By contrast, the top one percent of households would receive an average of $13,800 in tax cuts, and households with annual incomes of more than $1 million would receive an average tax cut of $42,000.

"The disparities in this bill are enormous,” claimed Joel Friedman, senior fellow at the Center and author of the Center's report.

“While middle- class households will receive a tax break that's barely big enough to buy a few gallons of gas, millionaires will receive a tax break that's big enough to buy a new Mercedes or Lexus," he remarked.

Grassley, chairman of the Senate Finance Committee, disputes the claims. Citing a study by the Joint Committee on Taxation, Grassley believes that lower income taxpayers would be “proportionately more at risk” than higher income taxpayers if the investment tax cuts expire at the end of 2008.

According to the JCT data, taxpayers with under $50,000 of adjusted gross income (AGI) will receive a 7.6 percent reduction in their total tax bill as a result of the lower rates on dividends. The tax savings from lower dividend tax rates for seniors with under $50,000 of AGI will be 17.1 percent. Those with AGI of $200,000 or more, however, will receive only a 5.7 percent reduction.

The data shows that the capital gains tax cuts will have a similar effect. Those with AGI of $50,000 and under will receive a 10.2 percent reduction in their total tax bill as a result of the lower rates on capital gains, about the same amount as those with AGI of $200,000 or more, while lower income seniors will save 13.2 percent.

“The findings show that the tax policy enacted by Congress in 2003 to lower taxes on dividends and capital gains has given meaningful benefits to taxpayers across the income spectrum, not just the rich,” Grassley stated.

“In fact, lower income taxpayers will save more than higher income taxpayers when measured as a percentage of total tax liability,” he added.

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