Little Relief to Millions of Families
by Robert Greenstein and Iris J. Lav
The House and Senate Republican leadership has proposed a 10 percent across-the-board income tax rate cut. This proposal would disproportionately benefit the highest-income taxpayers in the country, while providing no tax relief to millions of moderate-income working families with children.
- An analysis by Citizens for Tax Justice shows that more than 60 percent of the benefits of the tax cut would go to the 10 percent of taxpayers with the highest incomes.
- The bottom 60 percent of taxpayers would share just over nine percent of the total benefits under the plan.
- The average tax cut for the lowest-income 60 percent of all taxpayers — those with incomes below $38,000 — would be just $99.
- By contrast, taxpayers in the top 10 percent of the income distribution would enjoy an average tax cut of nearly $4,000 a year, and tax cuts for the highest-income one percent of all taxpayers — those making more than $300,000 a year — would average over $20,000 a year. (See CTJ analysis.)
Nearly 35 million taxpayers — 27 percent of all taxpayers — would receive no tax cut at all under the 10 percent income tax rate cut. Among these 35 million taxpayers are millions of low- and moderate-income working families raising children. For example, a two-parent family of four with annual income below $25,000 would not receive any benefit from the 10 percent rate cut.
As a result, this proposal would spend more than $1 trillion over the next 10 years to provide generous relief to the country's highest-income taxpayers, while providing little-to-nothing for moderate-income working families.
Low and Moderate Income Families Primarily Pay Payroll Tax, Not Income Tax
The combination of personal exemptions, the standard deduction, and the new child tax credit means that many low- and moderate-income families have no income tax liability before application of the Earned Income Tax Credit and so cannot benefit from an income tax rate cut. (These families also would not benefit from any new non-refundable income tax credit that Congress and the President might adopt.)
But while many moderate-income families do not have income tax liability, they pay substantial amounts of federal payroll tax. According to the Congressional Budget Office, payroll taxes make up most of the tax burden of low- income and middle-income families. Nearly three-quarters of all tax-paying individuals and families pay more payroll tax than income tax. (This assumes, as most economists do, that workers bear both the employee and employer share of the payroll tax. If only the employee share is considered, 42 percent of all individuals and families pay more payroll tax than income tax.) These families also pay federal excise taxes.
On its face, a proposal for a 10 percent tax rate cut for everyone may sound fair; it may sound as if everyone gets the same tax cut. In fact, an across-the-board tax cut provides greater benefits to higher-income taxpayers who, in our progressive income tax system, pay taxes at a higher marginal rate. And a rate cut provides no tax relief to workers who pay significant amounts of federal payroll taxes but for whom other provisions of the tax code already eliminate income tax liability.