NEWS FOR IMMEDIATE RELEASE: …

NEWS
                                  FOR IMMEDIATE RELEASE:                                      CONTACT: Henry Griggs
RELEASE                           Revised Friday, April 23, 2004                                       202-408-1080
_________
                                                              TAX RETURNS
                                                   New Report Questions Effectiveness,
820 First Street, NE, Suite 510
Washington, DC 20002
                                             Design of Bush Tax Cuts through 2004 and Beyond
Tel: 202-408-1080
Fax: 202-408-1056                         A new study of three years of Administration tax cuts, issued by the
center@cbpp.org                   Center on Budget and Policy Priorities, finds adverse fiscal, distributional, and
www.cbpp.org                      long-term economic effects from the tax cuts. The study, Tax Returns: A
________________________
                                  Comprehensive Assessment of the Bush Administration Tax Cuts, represents
Robert Greenstein
Executive Director                perhaps the most comprehensive analysis yet issued of the effects of the tax cuts,
Iris J. Lav                       synthesizing previous findings on both the 2001, 2002, and 2003 tax cuts and the
Deputy Director
________________________
                                  tax policy proposals in the Administration's fiscal year 2005 budget and featuring
                                  significant new data from the Urban Institute-Brookings Institution Tax Policy
Board of Directors
                                  Center.
David de Ferranti, Chair
The World Bank
                                         Among the study's highlights:
John R. Kramer, Vice Chair
Tulane Law School

Henry J. Aaron                           ·       The average tax cut for the top one percent of households will
Brookings Institution                            be nearly $35,000 this year, 54 times the average tax cut of
Ken Apfel                                        $647 that the middle fifth of households will receive. This
University of Texas
                                                 finding is based on a new analysis by the Tax Policy Center that
Barbara B. Blum
Columbia University                              examines the effects of all components of the tax cuts and is the
Marian Wright Edelman
                                                 first comprehensive Tax Policy Center analysis to be based on a
Children's Defense Fund                          revised and improved Tax Policy Center model that fully
James O. Gibson                                  incorporates the corporate and estate tax reductions.
Center for the Study of Social
Policy
                                         ·       The tax cuts will bestow more than $30 billion in 2004 on the
Beatrix Hamburg, M.D.
Cornell Medical College                          257,000 households with incomes exceeding $1 million, with
Frank Mankiewicz                                 these households securing average tax cuts of $123,600 each.
Hill and Knowlton                                The $30+ billion in tax cuts that these "millionaires" will receive
Richard P. Nathan                                in 2004 far exceeds the total amount of tax cuts that the nearly 29
Nelson A Rockefeller Institute
of Government                                    million households who comprise the middle fifth of the U.S.
Marion Pines
                                                 population will get.
Johns Hopkins University

Sol Price
Chairman, The Price Company                                  Distribution of Tax-Cut Benefits in 2004
(Retired)
                                                              (reflects tax cuts enacted since 2001)
Robert D. Reischauer                                                                   % increase
Urban Institute                                                            Average                   % share of
                                                      Income Class                     in after-tax
                                                                            tax cut                   tax cut
Audrey Rowe                                                                              income
ACS, Inc.
                                                  Middle 20 percent                $647        2.3%      8.9%
Susan Sechler
Rockefeller Foundation                            Top one percent               $34,992        5.3%      24.2%
Juan Sepulveda, Jr.                               Over $1 million             $123,592         6.4%      15.3%
The Common Experience/
San Antonio                                       Source: Urban-Brookings Tax Policy Center
William Julius Wilson
Harvard University
       ·       The tax cuts were not well designed to stimulate a weak economy. Only eight
               to 14 percent of the 2003 tax-cut package, which was promoted as being
               necessary to boost economic recovery, consists of high "bang-for-the-buck" tax
               cuts that will be provided by the end of fiscal year 2004. (A high bang-for-the-
               buck proposal is one that increases economic "demand" in the short term by more
               than one dollar for each dollar of lost tax revenue.) The tax cuts consequently
               have produced significantly less economic stimulus than could have been
               provided for the same (or less) budgetary cost. The failure of policymakers to
               design and enact more effective stimulus measures has likely contributed to job
               creation being more meager during this recovery than in other recoveries since the
               end of World War II.

       ·       From 2005 through 2014, the increased interest payments on the debt that
               will result from the tax cuts will amount to approximately $1.1 trillion, if the
               tax cuts are made permanent and the other tax-cut proposals in the
               Administration's fiscal year 2005 budget are enacted. The interest payments
               would reach $218 billion in 2014.

       ·       Without the tax cuts,
               deficits would be                       Deficits With and Without the Tax Cuts
                                                               (billions of dollars, 2000-2014)
               modest over the next
                                           $300
               ten years and be
                                           $200
               below $100 billion in
                                           $100
               2014. By contrast, with                  2002   2004      2006       2008      2010     2012
                                             $0
               the Administration's
                                           -$100
               tax-cut policies, the                                                       Deficits Without
                                           -$200
               deficit is likely to grow                                                      Tax Cuts
               to approximately $677       -$300


               billion by 2014.            -$400

                                           -$500                      Deficits With Tax Cuts

        "The tax cuts have contributed     -$600


to federal revenues, measured as a         -$700


share of the economy, dropping to
their lowest level since the Truman Administration, and have conferred the greatest benefits on
households at the highest income levels," said Isaac Shapiro, senior fellow at the Center on
Budget and Policy Priorities and co-author of the study. "The tax cuts also have produced less
economic stimulus and job growth than could have been accomplished with the same or even
lesser amounts of resources, because the tax cuts were poorly designed to respond to the
economic slump."

        Shapiro added: "The problems that the tax cuts pose are likely to grow more severe if the
tax cuts are made permanent, since the persistent, large deficits to which they would be a major
contributing factor are likely to slow future economic growth, saddle future generations with
sizable interest payments on a greatly enlarged national debt, and leave the nation ill-prepared
for the retirement of baby boomers."


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       Other significant findings from the study include the following.

     Bulk of Middle-Class Tax Cuts Could Have Been Provided at One-Third the Cost

        The tax cuts enacted over the past three years include three major "middle-class"
provisions: the provisions establishing the 10 percent tax bracket, expanding the Child Tax
Credit, and providing tax relief to married couples. These three tax cuts were enacted in 2001
and became fully effective in 2003, when their implementation was accelerated.

       These three provisions provide substantial help to the broad middle class. These
measures also provide significant tax benefits to high-income households. The middle fifth of
households will receive an average tax cut of $547 in 2004 from these provisions. The top one
percent of households will receive an average tax cut of $1,320 from these measures.

        But the distribution of tax benefits under the other tax-cut provisions enacted in the past
three years is far less evenly distributed. The new Tax Policy Center data show that the top one
percent of households will receive an average tax cut in 2004 of $33,700 from the other tax-cut
provisions. By contrast, the middle fifth of households will receive an average tax cut of just
$100 from these other provisions.

        The study also finds that these three middle-class provisions would account for only
about one-third of the cost of the tax cuts when the Administration's tax cuts were fully in effect.
The bulk of the tax-cut benefits that the middle class will receive thus could have been provided
for about one-third of the long-term cost that the Treasury will bear if the Administration's full
tax-cut agenda is enacted, with nearly all of the recent tax cuts being made permanent and some
new tax cuts being added on top.

                         Long-Term Costs and Distributional Effects

       If the Administration's tax-cut agenda is approved (and relief from the swelling
Alternative Minimum Tax is continued, as most observers expect it will be), future costs will be
extremely large.

       ·       Over the 10-year period from 2005 through 2014, the tax cuts will increase
               federal deficits by nearly $4 trillion. This includes the cost of the increased
               interest payments that will have to be paid on the national debt.

       ·       Over the next 75 years, the cost of the tax cuts would be more than three times the
               size of the Social Security shortfall, and larger than the shortfalls in the Social
               Security and Medicare Hospital Insurance trust funds combined.

        As uneven as the distribution of the tax cuts is in 2004, the distribution will become still
more uneven over time. The tax cuts of greatest benefit to the middle class already are fully in
effect. Some of the tax cuts of most benefit to high-income households, however -- such as the
elimination of the estate tax -- are only partly in effect now or have not yet begun to take effect.

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                         The Very Well-Off: Big Winners on Two Fronts

         In addition to the large tax cuts they are now receiving, high-income households secured huge
gains in income in the 1980s and 1990s. Just-released Congressional Budget Office data for the years
from 1979-2001, the most comprehensive data available on recent changes in incomes and taxes for
different income groups, show:

        ·       The average after-tax income of the top one percent of the population more than doubled
                over this period, rising from $294,300 in 1979 to $703,100 in 2001, an increase of 139
                percent. (These figures are adjusted for inflation.)

        ·       By contrast, the average after-tax income of households that make up the middle fifth of
                the U.S. population rose $6,300, or 17 percent, during this period. The average after-tax
                income of the poorest fifth of households rose $1,100, or eight percent.




                                    Jobs and Economic Growth

       Job growth during this recovery might have lagged well behind that of previous
recoveries even if recent economic policies had been better designed. Nonetheless, the unusually
poor job growth of the past couple of years suggests the Administration's tax cuts have fallen
well short of accomplishing one of their stated goals.

        ·       Employment remains substantially below its level at the start of the downturn, a
                development unparalleled this far into a post-World War II recovery. Substantial
                job growth typically occurs by this point.

        ·       The Economic Policy Institute has compared actual job growth since the summer
                of 2003 to the level of job growth the Administration predicted would occur with
                passage of the 2003 tax cut. The Administration predicted that with passage of
                that measure, 5.5 million jobs would be created in the 18 months from June 2003
                through December 2004. Employment figures through March 2004, however,
                indicate that in the first half of this 18-month period, only 689,000 jobs were
                created. This amounts to just 13 percent of the Administration's jobs projection.

        Overall economic growth also has been below par. Whether measured from the start of
the recession or the end of the recession, the economy has grown more slowly in the past few
years than it grew, on average, at comparable stages of other post-World War II recoveries.

                                     The Administration's Story

        The Administration has highlighted the tax-cut benefits the middle class has received and
also has promoted its tax cuts as being highly beneficial to groups such as small business owners.
The Center's study finds much of the information the Administration has put forward on these
matters has been selective or misleading. As one example, President Bush has often cited the
"average" tax cut that American families are receiving. The large majority of families, however,
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are getting considerably less than this "average" amount. The tax cut that the typical household
will receive in 2004 is less than half the amount that the President has described as being the
"average" tax cut this year. The Administration's average tax-cut figures are skewed upward by
the inclusion of the very large tax cuts going to a relatively small number of very affluent
taxpayers.

       Administration officials also have touted the benefits to small business owners of the
reductions in the top income tax rate. But Treasury Department data show that the top-rate
reduction benefits only two percent of small business owners.

        The Center's study concludes that the majority of Americans are likely to end up worse
off over time as a result of the tax cuts, because action ultimately will need to be taken to rein in
burgeoning deficits and pay for the tax cuts. "Because the tax cuts are so tilted toward the
highest-income households," said Joel Friedman, a senior fellow at the Center and co-author of
the report, "the burden of financing these lopsided tax cuts eventually is likely to be borne
disproportionately by households that have gained only modestly from the tax cuts. This will be
the case unless offsetting spending cuts or tax increases are enacted that reduce benefits or raise
taxes primarily on high-income households, an unlikely scenario. Over the long term, most
Americans may well end up as net losers from the tax cuts."



          The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy
institute that conducts research and analysis on a range of government policies and programs. It is supported
primarily by foundation grants.

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