Revised May 28, 2003

ADMINISTRATION CONTINUES TO RELY ON MISLEADING
USE OF “AVERAGES” TO DESCRIBE TAX-CUT BENEFITS

By Andrew Lee and Joel Friedman

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After Congress reached agreement on a package of tax cuts last week, the Treasury Department released a blizzard of fact sheets and press releases touting the benefits of these tax cuts.  One of the fact sheets presented the “average” tax cut that various beneficiaries — ranging from the elderly to small business owners — would receive from the final package.[1]  The President repeated a number of these figures in his speech when he signed the measure into law today.

This use of averages paints a misleading picture of the impact of these tax cuts, however, repeating a strategy employed by the White House when it was trying to sell its original tax-cut plan.  Taken at face value, these average figures could imply that the tax cuts provide substantial benefits across a wide spectrum of the population; in reality, the final agreement’s tax cuts are heavily tilted toward the nation’s most affluent individuals and do little for the majority of U.S. households, according to an analysis by the Urban Institute-Brookings Institution Tax Policy Center.

The Treasury release states that “91 million taxpayers will receive, on average, a tax cut of $1,126.”  However, according to analysis by the Tax Policy Center:

The Administration’s use of averages is highly misleading.  The averages are skewed upward by the very large cuts that would go to a small number of high-income taxpayers.  For instance, the new law will provide an average tax cut in 2003 of $93,500 to tax filers who make more than $1 million per year.  In contrast, most households will get a small tax cut or no tax cut at all.  For an example of how such averages can be deceptive, consider a group of five individuals — four of whom each receive a tax cut of $100 and one who receives a $4,600 tax cut.  The average tax cut for the group is $1,000, but four of the five receive far less than this amount.

Category

“Average” benefit for all those receiving tax cut

Percentage of all households that receive

Less than “average” amount

$100 or less

All households

$1,126

   82.9%

   53.4%

Married couples

  1,786

75.5

24.5

Families with children

  1,549

77.8

31.1

Single women with children

     558

88.6

58.3

Elderly households

  1,401

89.4

63.0

Households with small business income

  2,209

82.6

36.3

Source:  First column of figures from the Treasury Department; other figures are from the Urban Institute-Brookings Institution Tax Policy Center.

The Treasury Department’s use of averages to describe the benefits suffers from similar distortions (see table above).  In today’s signing ceremony, the President specifically cited the following three examples:


End Notes:

[1] Treasury Department, “Effects of Major Individual Income Tax Relief Provisions in Jobs and Growth Tax Relief Reconciliation Act of 2003,” Press Release JS-410, May 22, 2003.