Revised July 21, 1999
Joint Tax Committee Distribution Tables Fail to Include
Most of the Upper-income Tax Cuts in the Roth Package
Figures in the Tables Have Little Meaning As a Result
by Robert Greenstein and Iris J. Lav
On July 20, the Joint Committee on Taxation released distributional tables on the tax package developed by Senate Finance Committee Chairman William Roth. At first glance, these tables seem to show that the tax package provides virtually no tax cut to very high-income individuals and concentrates its tax cuts on middle-income individuals.
A provision-by-provision analysis of the package, however, indicates it confers a large share of its tax cut benefits on upper-income individuals rather than the middle-class. (See the Center's July 19 analysis "Is the Roth Proposal a Middle-Class Tax Cut?") In addition, an analysis Citizens for Tax Justice issued July 20 finds that the 20 percent of households with the highest incomes would receive 76 percent of the tax cuts the Roth plan provides with the top one percent of households gaining 29 percent of the tax cuts while the middle fifth of households would receive just seven percent of its benefits. In addition, the 60 percent of households in the middle of the income spectrum the broad middle class would receive only 24 percent of the tax cuts. How does one square these findings with the figures in the Joint Tax Committee tables?
The answer is that due to a serious limitation, the Joint Tax Committee tables are essentially meaningless. The distributional figures in the tables present a misleading picture of whom the bill benefits.
The Joint Tax Committee tables include virtually all of the bill's major middle-class provisions but exclude in whole or substantial part most of its upper-income tax cuts. The tables miss most of the tax cuts that would disproportionately benefit high-income households for two reasons. First, the tables only cover the years through 2004. Many of the key upper-income provisions in the package do not take effect until 2005. Second, the tables fail to include several significant upper-income tax cuts, such as the bill's large estate tax cuts, regardless of the year in which these provisions are implemented. Tables that include the bill's principal middle-income provisions but exclude the bulk of its provisions that disproportionately benefit higher-income households necessarily paint a misleading picture of the bill's distributional effects when the bill is fully in effect.
Most Middle-Income Provisions Included,
Most Upper-Income Provisions Excluded
The principal provisions of the Roth proposal that would disproportionately benefit upper-income households include: the estate tax reductions (which would affect the estates only of the wealthiest two percent of people who die); the provision increasing the income level at which the current 15 percent rate bracket ends and the 28 percent bracket begins (a provision benefiting only the one-quarter of filers with incomes that place them above the current 15 percent bracket); the provision to allow married couples to file single returns (which would provide approximately 80 percent of its tax-cut benefits to the top third of households); the increases in IRA income and contribution limits; the provisions to modify the individual alternative minimum tax; and provisions to increase pension contribution and benefits limits. Most of these provisions are excluded in whole or in substantial part from the Joint Tax Committee distribution tables.
- The provision to increase the income level at which the current 15 percent bracket ends and the 28 percent bracket begins is excluded because the tables go through 2004 and this provision takes effect in 2005.
- The same is true of the provision allowing married couples to file as singles. It, too, takes effect in 2005.
- So does a provision to allow the personal exemption against the alternative minimum tax.
- The estate tax cuts are not included at all. Nor are the proposals to increase contribution limits for 401(k)'s and other pension plans. The overwhelming majority of the individuals who contribute the maximum amount currently allowed to such pension plans, and who would be able to take advantage of an increase in the contribution limit, are individuals with high incomes. The bill's expanded pension tax preferences thus are concentrated on high earners. (For example, the bill increases from $10,000 to $15,000 the maximum amount that an employee can contribute each year to a tax-deferred retirement plan. Few individuals other than those with large incomes can afford to contribute the maximum $10,000 currently allowed, let alone $15,000.)
- Still another provision not included in the tables is the proposal to make Roth IRAs available to high-income individuals who already participate in an employer-sponsored, tax-advantaged retirement plan. Current law limits the use of Roth IRAs by individuals with employer-sponsored plans to those with incomes below $110,000 for single taxpayers and $160,000 for married taxpayers. The Roth plan would repeal this income limit, making Roth IRA tax breaks available to individuals with employer-sponsored retirement plans no matter how high their incomes may be. Also not reflected in the Joint Committee tables is a provision to increase the maximum amount an individual can contribute to a Roth IRA, a provision that would be of primary use to higher-income individuals who can afford to make larger contributions than the maximum amount currently allowed.