Revised January 28, 2003

by Joel Friedman

PDF of full report

View Economic Stimulus Analyses

If you cannot access the files through the links, right-click on the underlined text, click "Save Link As," download to your directory, and open the document in Adobe Acrobat Reader.

Supporters of the Administration’s "economic growth" package frequently stress the impact of these tax cuts on the elderly.   In particular, they maintain that a significant share of the benefits of the proposed exemption from individual taxes of corporate dividends would flow to the elderly. Although the elderly as a group would receive a large relative share of the Administration’s proposed tax cuts, these benefits would flow predominately to those elderly individuals who have high incomes.

According to estimates prepared by the Urban Institute-Brookings Institution Tax Policy Center, nearly 15 percent of the total tax-cut benefits of the "growth" package would go to tax filers over the age of 65. But of this total going to the elderly:

The Administration has also portrayed its tax cuts as advantageous for the elderly by noting that "13 million elderly would receive an average tax cut of $1,384." But highlighting the average tax cut is misleading, because Tax Policy Center data show that only 79 percent of elderly tax filers — nearly four out of five — would get less than this amount. About 40 percent of elderly tax filers would receive less than $100 from the Administration’s package.

Impact of Dividend Tax Cut on the Elderly

Tax Policy Center estimates also show the misleading nature of the claims that the proposed dividend tax cut would greatly benefit the elderly. The estimates confirm that a significant share of the benefits of the dividend tax cut — 37 percent — would go to those over age 65. But these benefits would be concentrated in a small group of elderly who have high incomes.

By citing a statistic showing that a large share of the benefits from the dividend exemption would go to the elderly, some proponents of this tax cut appear to be trying to foster the impression that it would benefit the average or typical elderly person. This is not the case. The majority of elderly have fairly modest incomes and would receive little or nothing from this tax proposal.

Overall, the benefits of the Administration’s tax-cut proposals would flow predominately to a small group of individuals with high incomes, and a number of these high-income taxpayers happen to be elderly. That this is so does not alter the fact that most elderly people would receive little or no benefit from the Administration’s proposal. In fact, many elderly could be adversely affected if the tax cuts resulted in fewer resources being available for programs upon which ordinary elderly people rely.