January 27, 1998

Taxpayers Will Have New Tax Cuts Even If No Additional Reductions Are Enacted

by Iris J. Lav

The Taxpayer Relief Act of 1997 that was enacted last summer includes a number of provisions for which the effective date of the tax reduction is delayed to future years. This is a major reason why the cost of the new tax law increases over time from $9.5 billion in fiscal year 1998 to $35 billion in 2003 and $41.6 billion in fiscal year 2007.

One consequence of these delayed effective dates is that taxpayers will experience new tax cuts in most years over the next decade even if no additional tax reductions are enacted in this or subsequent years. This means any tax reductions Congress considers in the 1998 session would come on top of the substantial tax cuts already scheduled to take place between now and 2007.

There are, for example, a number of tax cuts included in the 1997 legislation that first take effect in 1999. Tax cuts beginning in tax year 1999 include the following:

These additional tax cuts already enacted into law for 1999 are far from trivial in cost. While the Taxpayer Relief Act of 1997 will cost $9.9 billion in fiscal year 1999, its cost rises nearly three-fold to $27.9 billion in fiscal year 2000, when the effect of the additional tax cuts for tax year 1999 will first be fully felt. (Tax cuts that are effective for tax year 1999 will, in substantial measure, be reflected in smaller amounts of taxes owed or larger refunds provided in April, 2000, when tax returns for 1999 are due.)

Taxpayers will continue to reap new, additional tax cuts in years beyond 1999. The following are examples of new tax cuts that will take effect in future years.

The additional tax cuts that become newly available over the course of the next decade substantially increase the cost of the tax legislation enacted in 1997. The $41.6 billion cost of the tax package in 2007 is far greater than the $9.9 billion the tax breaks will cost in 1999.

These tax cuts also contribute to a decline in tax revenues as a percentage of the economy over the next decade. According to the Congressional Budget Office, tax revenue will drop from 19.9 percent of GDP in fiscal year 1998 to 19.3 percent of GDP in fiscal year 2003.

End Notes

1. Some of the tax provisions listed here are phased out for families and individuals with incomes above specified levels.