March 8, 2001


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On March 6, the Center on Budget and Policy Priorities released Income Tax Rates and High-Income Taxpayers: How Strong Is the Case for Major Rate Reductions? The report finds that the share of income taxes paid by high-income families has grown over the past decade primarily because these families have experienced dramatic increases in their incomes, not as is often claimed because of marginal tax rate increases enacted in the early 1990s. The after-tax income of the top one percent of tax filers grew 47 percent between 1992 and 1998, nearly six times more than the percentage increase for the bottom 95 percent of filers. The Administration's plan and the House bill would both exacerbate the trend over the past several decades of increasing disparities in incomes.

The report primarily uses the latest Internal Revenue Service tax and income data available, which sometimes is for 1997 and other times is for 1998. The findings include:

3-6-01tax2-f1.jpg (31397 bytes)

The report concludes that any tax cut should tilt against the trend of widening income disparities or, at a minimum, not exacerbate this trend. This goal can be achieved only if the share of the tax cuts that high-income families receive is no greater than their share of the national after-tax income. The Administration's tax proposal, as well as the bill on which the House of Representatives will vote on March 8, fail to meet this standard. (Also see the Center analysis, "Bush Tax Cut and House Rate Cut Widen Record After-tax Income Disparities.")

Tax Cut as a Percent of After-tax Income
(when fully phased-in)
  Top 1% Next 4% Next 15% Fourth 20% Middle 20% Second 20% Lowest 20%
Bush Package 6.2% 2.4% 2.4% 2.3% 1.9% 1.2% 0.6%
House Bill 3.8% 0.6% 1.1% 1.2% 1.2% 1.0% 0.5%