Revised September 13, 2004

by David Kamin and Isaac Shapiro[1]

PDF of this fact sheet

Related Report:
Studies Shed New Light on Effects of Administration’s Tax Cuts

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A new Center report, Studies Shed New Light on Effects of Administration’s Tax Cuts, highlights data and analyses released in the past few weeks that provide a more complete picture of how the tax cuts enacted in 2001, 2002, and 2003 are affecting the economy, the budget, and different income groups.  These data and analyses include:

Data from a new Congressional Budget Office report indicate that the tax cuts will exacerbate income inequality.

An August 13 CBO study shows that the tax cuts will raise after-tax incomes by a much greater percentage for the top one percent of households than for any other income group.  As a result, the tax cuts will increase the share of the nation’s after-tax income that goes to the top one percent and decrease the share received by the bottom 80 percent.  Most economists believe changes in after-tax income are the best measure of how tax cuts affect different income groups, since after-tax income is the income a household can spend or save.

Who Benefits the Most from the Tax Cuts?


Average Income

Change in After-Tax Income

Lowest 20 percent



Second 20 percent



Middle 20 percent



Fourth 20 percent



81-90 percent



91-95 percent



96-99 percent



Top one percent



Source:  CBPP calculations based on CBO data for 2004.  (These data exclude corporate and estate tax cuts.  The CBO report also provides data that include the corporate tax cuts; these data show the tax cuts to be skewed even more toward those at the top.)

Moreover, the CBO data cited in the table understate the degree to which the tax cuts are tilted toward high-earners because they do not include the effects of two tax cuts that mostly benefit very high-income households: the “bonus depreciation” business tax cut and the phase-out of the estate tax.

Even before the tax cuts, incomes were growing fastest at the top of the income scale.  An April 2004 CBO study showed that between 1979 and 2001 (the last year CBO examined), the average after-tax income of the top one percent of households rose by 139 percent ($409,000) after adjusting for inflation, compared to a 17-percent ($6,300) increase for the middle fifth of households and an 8-percent ($1,100) increase for the bottom fifth.