September 29, 2004

Statement by Robert Greenstein
on the Signing of the “Middle-Class” Tax Cut BILL

PDF of this analysis Related Reports Looking Inside The New "Middle-Class" Tax Cuts New ‘Middle-Class’ Tax-Cut Bill Represents Cynical Policymaking Many Middle-Class Families Likely to Wind Up as Net Losers From the ‘Middle-Class’ Tax Cuts View Related Reports

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The “middle-class” tax-cut legislation the President will sign Monday in Iowa is fundamentally flawed.

• Despite the legislation’s “middle-class” label, middle-class families aren’t its main beneficiaries.  More than two-thirds of the tax cut will go to the fifth of households with the highest incomes, according to the Urban Institute-Brookings Institution Tax Policy Center.  Households in the middle 20 percent of the income scale will get only nine percent of the tax cuts, a peculiar result for a “middle class” tax-cut bill, and will receive an average tax cut of just $162 from the bill next year.  By contrast, households in the $200,000 to $500,000 income range will get an average tax cut of $2,390.

• The bill will lose $146 billion in revenue over ten years and add more than $200 billion to deficits, when the added interest payments on the national debt that result from the bill are taken into account.  The House and Senate have passed measures this year to close abusive corporate tax shelters; Congressional leaders could have used those measures to pay for the new tax bill.  Instead, they chose to pass the “middle class” tax bill without paying for it.  They appear set on using the corporate tax savings to help finance a new round of corporate tax breaks and loopholes instead.

When the “middle-class” tax cut is paid for — as it eventually will have to be, given the large, persistent deficits we face — many middle-class households are likely to lose more from the tax increases and spending cuts that ultimately will be imposed to pay for these tax cuts than they will gain from the tax cuts themselves.

• Low-income working families are largely left behind.  The bill provides “marriage penalty” relief for middle- and upper-income families but not for low-income working families, even though they can face some of the largest marriage penalties in the tax code.  The bill also fails to address the ongoing erosion of the component of the Child Tax Credit that serves the working poor; this erosion has made full-time minimum-wage workers ineligible for the credit.  Congressional leaders refused to include these provisions in the bill despite their low cost, even as they agreed to add $13 billion in unpaid-for corporate tax cut extensions.

The “middle-class” tax-cut bill represents the latest step in the continuing slide toward fiscal irresponsibility and favoritism toward the well-off, while largely neglecting the low-wage families that need help the most.

For more information on this legislation, see "Looking Inside The New "Middle-Class" Tax Cuts," “New ‘Middle-Class’ Tax-Cut Bill Represents Cynical Policymaking” and “Many Middle-Class Families Likely to Wind Up as Net Losers From the ‘Middle-Class’ Tax Cuts.”

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