September 16, 1998
Understanding the Joint Tax Committee Report
on the Distributional Effects of the Archer Bill
The Joint Committee on Taxation today released an analysis of the distributional effects of the Taxpayer Relief Act of 1998.(1) This analysis shows that the bill directs most of its benefits to upper middle-income families. However, the JCT assessment does not include the effects of the bill's estate tax provisions; those provisions which account for nearly a quarter of the bill's cost over the next five years will benefit only the wealthiest households. As a result, the JCT analysis presents an incomplete picture of legislation that provides a disproportionate amount of its tax cuts to higher-income households and offers little tax relief to low and moderate-income families.
- The JCT analysis concludes that from 1998 to 2003, households with income greater than $50,000 will receive 73 percent of the tax cuts in the Taxpayer Relief Act of 1998. According to the Congressional Budget Office, only 36 percent of all households will have income exceeding $50,000 in 1999. The nearly two-thirds of all households with income less than $50,000 will receive only about one-fourth of the tax benefits from this bill.(2)
- Furthermore, those JCT estimates understate the share of tax benefits the bill provides to high-income households because the analysis excludes the effects of the bill's proposed reductions in the estate tax. The estate tax affects only the wealthiest two percent of estates. As a result, reductions in the estate tax affect only wealthy households. Under conservative assumptions that include the effect of the bill's estate tax reductions, the top tenth of all households would receive approximately 36 percent of the bill's total tax cut, while the bottom two-thirds would receive only one-fifth of the tax benefits.(3)
Distributional Effects of the Archer Tax Bill Income Category Percentage of All Households Share of Tax Cut without Estate Tax Reduction Share of Tax Cut with Estate Tax Reduction Less than $50,000 64% 27% 21% $50,000 to $100,000 25% 52% 43% Over $100,000 11% 20% 36%
1. Distributional Effects of the Taxpayer Relief Act of 1998, Joint Committee on Taxation, September 15.
2. JCT did not specify how many households fall into each of the income categories it analyzed. CBO, however, uses a measure of family income similar to that used by JCT; the CBO distribution is used in this analysis for purposes of considering the percent of taxpayers at different income levels that benefit from the tax cut. See Estimates of Federal Income Tax Liabilities for Individuals and Families by Income Category and Family Type for 1995 and 1999, Congressional Budget Office, May 1998.
3. This analysis makes the conservative assumption that 90 percent of the estate tax cuts accrue to households with over $100,000 in income, and that 10 percent accrue to households with between $50,000 and $100,000 in income. It is likely that this assumption understates the extent to which the estate tax cuts benefit very high-income taxpayers.