Sunday, June 1, 2003
Millions of single taxpayers get no tax cuts
A story published today in the New York Times reports that a new study by groups critical of the tax law that President Bush signed on Wednesday has found that 8 million mostly low-income taxpayers will not receive any benefit from the law.
Republicans have said for weeks that the new tax law was designed to benefit all those who pay income taxes.
This is the second time since Congress passed the bill that critics have demonstrated how some of its provisions would not help millions of people in the lowest tax brackets. In response to earlier disclosures about the complex bill's fine print, the Senate's chief Republican writer of tax legislation said on Friday that Congress should revise at least some of the law's provisions, involving child tax credits, to broaden their effect.
The new analysis says that the taxpayers who get nothing from the tax law are primarily low-income single people who do not have children and lack income from dividends or capital gains. A large number of low- and moderate-income single parents with children over 16 will also get no benefit from the law, because it did not change the tax rate for such parents who are unmarried.
The study was conducted by two groups who have been critical of the law, the Urban-Brookings Tax Policy Center, which is affiliated with the Brookings Institution and the Urban Institute, and the Center on Budget and Policy Priorities, a liberal research group.
Last week, the two groups, along with Citizens for Tax Justice, found that 6.5 million minimum-wage families — with nearly 12 million children — would not receive the $400-per-child increase in the child tax credit contained in the new law. The families were left out of the tax law in last-minute Congressional negotiations over how much to cut the tax on stock dividends and capital gains, while keeping the entire bill under the Senate limit of $350 billion.
In combination with the children who were cut from the bill's benefits by the Congressional negotiators, the study says, there are 50 million households — 36 percent of all households in the nation — who will receive no benefit from the tax law. The figure includes people who do not earn enough to owe income tax.
The Republican National Committee Web site describes the law in detail and summarizes the point that many members of Congress have also made this week.
"Who benefits under the president's plan?" the Web site asks. "Everyone who pays taxes — especially middle-income Americans — as tax rate reductions passed by Congress in 2001 are made effective immediately."
Ari Fleischer, the White House press secretary, made a similar point in his news briefing on Thursday, saying that people in the lowest tax bracket would "benefit the most" from the bill. "This certainly does deliver tax relief to the people who pay income taxes," he said, referring particularly to families with children. And Mr. Grassley said last week that "all taxpayers will see more money in their paychecks."
But the new study found five million taxpayers in the lowest tax bracket who get no benefit from the law, and 2.5 million single parents with children who also pay taxes but get nothing.
In the first category are taxpayers in the 10 percent bracket who have no children and no dividend or capital gains income. This group, which constitutes 89 percent of all single taxpayers in the lowest bracket, do not benefit from the expansion of the 10 percent bracket because they are already in it. They have no children, so they do not get the child credit, and they do not benefit from the law's relief for married couples. Members of this group, who make $9,300 to $13,800 a year, now pay up to $600 in income taxes.
The second group consists of 2.5 million taxpayers in the head-of-household filing status — mostly single parents — who have a child over 16 and who are in the two lowest tax brackets. The study found that they will not receive a tax cut, even though they pay as much as $5,200 in income taxes, because the lowest bracket is not expanded for head-of-household filers under the new law. The child credit is not available, either, because of the age of the children.
There are about a half-million additional taxpayers at all income levels who will not benefit from the new law because they fall between the cracks. They include a childless married couple in the lowest tax bracket who itemize their deductions and cannot take advantage of the increased standard deduction for couples. About 12,000 taxpayers making more than $200,000 will also receive no benefit because they have no dividend or capital gains income, and make too much money to take advantage of the increased exemptions from the alternative minimum tax in the law.
"It's another illustration that the real purpose of this tax bill was not to give a boost to the economy now," said Robert Greenstein, executive director of the Center on Budget and Policy Priorities. "The bill really consists of new provisions, like dividend tax cuts, that administration officials and their supporters in Congress have long wanted for other reasons. If they were really serious about boosting the economy, they would not have excluded these people, because they're the ones who spend rather than save."
The study's authors noted that there are 40 times as many taxpayers who get no benefit from the cuts as there are millionaires who will get 44 percent of the law's tax benefits in 2005.
"This group, more than 8 million taxpayers, ranked lower in the administration's priorities than the 200,000 taxpayers with incomes of a million dollars or more," said Peter Orszag, a senior fellow at Brookings who is co-director of the Tax Policy Center. "That just demonstrates how regressive this tax law is." Mr. Orszag was an economic policy adviser to President Bill Clinton.