May 26, 2001

Under Conference Agreement, Dollar Gains for Top One Percent Essentially the Same as
Under House and Bush Packages
Share of Tax Cuts to Top Fifth Basically Identical Under the Different Packages

by Isaac Shapiro, Robert Greenstein, and James Sly

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The top one percent of taxpayers would effectively receive as large a tax cut under the conference agreement as under the House and Bush plans, and the share of the tax cuts that would ultimately be received by the top fifth of taxpayers is essentially the same under the agreement as under the House and Bush plans.

Share of Tax Cuts Received by Top Fifth under Conference Agreement
(when fully phased-in)
Estate Tax Distribution Method Conference House Bush
Citizens for Tax Justice 70.8% 70.5% 71.7%
Treasury 70.6% 70.4% 71.2%

Similarly, the share of the tax cuts that would go to the bottom 80 percent of the population — 29 percent — is essentially the same under the agreement as under the Bush and House packages. The bottom 60 percent of the population would receive 14.7 percent of the tax cuts, modestly more than under the Bush (12.7 percent) and House (14.0 percent) packages.

The tilt of the conference agreement may be surprising since two provisions make it more moderate in important respects than the Bush and House packages. One is the noteworthy expansion in the child tax credit to low- and moderate income working families with children that have earnings above $10,000, a significant provision for these families. The other such provision is the lowering of the top tax rate to 35 percent instead of to 33 percent, as President Bush proposed.

Several other key provisions in the conference agreement, however, are more tilted to high-income taxpayers than any comparable provisions in the Administration or House plans.

The tax cuts are still more skewed toward those with high incomes if one assumes, as is likely to be the case, that a fix to the Alternative Minimum Tax will be adopted in the next few years. Under the conference agreement, 35.5 million taxpayers would be subject to the AMT in 2010. This is nearly 25 times the 1.5 million taxpayers who are subject to the AMT this year and double the number of taxpayers who would be subject to the AMT in 2010 under current law. There is near-universal agreement that such a swollen AMT is unacceptable and that changes will be made to prevent the AMT from burgeoning in this manner in coming years. When these changes in the AMT are made, the magnitude of the tax cuts that higher-income taxpayers would receive from the provisions in the tax packages will grow to still higher levels, as will the share of the tax-cut benefits they secure. The average tax cut received by the top five percent of taxpayers will increase by several thousand dollars.

Even without considering any fix to the AMT, these tax cuts will increase after-tax income by a significantly larger percentage for the top one percent of taxpayers than for middle- and lower-income households. After-tax income will rise about three times as much among the top one percent of families as among those in the middle of the income scale, and more than seven times faster among the top one percent of families than among the bottom 20 percent of families. As a result, the proposal will cause income disparities, which are at record levels for recent decades, to widen further.


End Notes:

1. See the Center on Budget and Policy Priorities report "Who Would Benefit From the Tax Proposal Before the Senate?", May 21, 2001, for a fuller explanation of the distributional methodology that we use.

2. Dan Morgan, "Core of Original Bush Tax Plan Remains Intact Despite Tinkering," The Washington Post, May 26, 2001.

3. Using Citizens for Tax Justice estimates for the distribution of the estate tax, the top one percent of the distribution would receive 37.6 percent of the tax cuts when they are fully in effect. Using the Treasury Department's method of distributing the estate tax, the top one percent would receive 32.5 percent of the tax cuts.

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