The 1997 Budget Deal - What It Means to Taxpayers

Policy Backgrounders | Taxes

No. 144
Wednesday, February 04, 1998
by Bruce Bartlett


  1. The agreement further limited the revenue loss in fiscal years 2003 through 2007 to $165 billion, in order to forestall back-loaded tax cuts.
  2. June E. O'Neill, letter to the Honorable Pete V. Domenici, May 2, 1997.
  3. For details and criticism of CBO's revenue revision, see Martin A. Sullivan, "CBO's Poor Judgment, Soft Numbers Raise Questions on Budget Process," Tax Notes, vol. 75, no. 7 (May 19, 1997), pp. 883-87.
  4. Public Law 105-34.
  5. Thomas M. Humbert, "Ending the Tax Code's Anti-Family Bias by Increasing the Personal Exemption to $6,300," Backgrounder No. 687, Heritage Foundation, 1989.
  6. U.S. Congress, House, Committee on Ways and Means, Contract with America Tax Relief Act of 1995, 104th Congress, 1st session, House Report 104-84 (Washington: U.S. Government Printing Office, 1995), pp. 10-11.
  7. This commission was also known as the Rockefeller Commission, after its chairman, Senator John D. Rockefeller IV (D-W.Va.).
  8. C. Eugene Steuerle and Jason Juffras, "Correcting Distortions in the Tax-Transfer System for Families with Children," Policy Bites No. 6 (Washington: Urban Institute, 1991).
  9. Robert Rector and Stuart M. Butler, "Reducing the Tax Burden on the Embattled American Family," Backgrounder No. 845, Heritage Foundation, 1991.
  10. See, for example, the testimony of Gary Bauer, president of the Family Research Council, and Marshall Wittmann, director of legislative affairs for the Christian Coalition in U.S. Congress, Joint Economic Committee, The Family First Act: The Economic Effects of a $500 Per-Child Expanded Tax Credit (Washington: U.S. Government Printing Office, 1996).
  11. The Tax Reform Act of 1986 raised the top rate on capital gains from 20 percent to 28 percent in order to equalize the tax treatment of capital gains and ordinary income. Interestingly, in 1993 when President Clinton and a Democratically controlled Congress raised the top rate on ordinary income from 28 percent to 39.6 percent, they left the top rate on capital gains at 28 percent. Thus the Clinton administration had proven itself willing to accept a lower tax rate on capital gains even before debate on the 1997 legislation began.
  12. The taxpayer would face a capital gains tax on this fictitious transaction, but if the asset were sold in the future, further gains would be taxed at the lower rate.
  13. James R. Repetti, "The Use of Tax Law to Stabilize the Stock Market: The Efficacy of Holding Period Requirements," Virginia Tax Review, vol. 8, no. 3 (Winter 1989), pp. 591-637. The vast bulk of trading in the stock market today is not by individuals who are affected by the holding-period requirement but by institutions mainly trading on behalf of tax-exempt pension funds.
  14. Robert B. Reich, The Resurgent Liberal (New York: Times Books, 1989), pp. 21-22.
  15. Steven Kaplan, "The Holding-Period Distinction of the Capital Gains Tax," NBER Working Paper No. 762 (Cambridge, Mass.: National Bureau of Economic Research, 1981).
  16. Repetti, op. cit.
  17. For a discussion of this point, see Harold M. Somers, "Capital Gains Tax: Significance of Changes in Holding Period and Long-Term Rate," Vanderbilt Law Review, vol. 16, no. 3 (June 1963), pp. 509-33.
  18. The revenue loss from cutting the capital gains tax falls from -$2,934 million in FY2001 to -$1,785 million in FY2002, rising again to -$3,742 million in 2003. U.S. Congress, House, Taxpayer Relief Act of 1997: Conference Report, 105th Congress, 1st session, House Report 105-220 (Washington: U.S. Government Printing Office, 1997), p. 780.
  19. Lee A. Sheppard, "Should Sales of Personal Residences Be Exempt from Tax?" Tax Notes, vol. 50, no. 12 (March 25, 1991), pp. 1433-34.
  20. There is, of course, considerable debate on the economic effects of capital gains taxes. For a recent review of the evidence, see George R. Zodrow, "Economic Analysis of Capital Gains Taxation: Realizations, Revenues, Efficiency and Equity," Tax Law Review, vol. 48, no. 3 (Spring 1993), pp. 419-527.
  21. Richard W. Stevenson, "The Long Arm of Small Business," New York Times, June 12, 1997.
  22. U.S. Congress, Joint Committee on Taxation, Description and Analysis of Proposals Relating to Estate and Gift Taxation, JCS-7-97 (Washington: U.S. Government Printing Office, 1997), pp. 23, 31.
  23. George Cooper, A Voluntary Tax? New Perspectives on Sophisticated Estate Tax Avoidance (Washington: Brookings Institution, 1979). See also Christopher Drew and David Cay Johnston, "For Wealthy Americans, Death Is More Certain than Taxes," New York Times, December 22, 1996.
  24. For a recent review of estate planning techniques, see John A. Miller and Jeffrey A. Maine, "Fundamentals of Estate Planning," Idaho Law Review, vol. 32, no. 2, pp. 197-252.
  25. The top statutory estate tax rate is 55 percent, but the effective rate is 60 percent for estates between $10 million and $21 million, due to phase-out of the graduated rates and the estate tax exemption.
  26. Henry J. Aaron and Alicia H. Munnell, "Reassessing the Role for Wealth Transfer Taxes," National Tax Journal, vol. 45, no. 2 (June 1992), pp. 119-43.
  27. Alan S. Blinder, "Inequality and Mobility in the Distribution of Wealth," Kyklos, vol. 29, no. 4 (1976), pp. 607-38.
  28. Joseph E. Stiglitz, "Notes on Estate Taxes, Redistribution, and the Concept of Balanced Growth Path Incidence," Journal of Political Economy, vol. 86, no. 2, pt. 2 (April 1978), pp. S137-50.
  29. Douglas Holtz-Eakin, "The Uneasy Empirical Case for Abolishing the Estate Tax," Tax Law Review, vol. 51, no. 3 (Spring 1996), pp. 495-515.
  30. Douglas Holtz-Eakin, David Joulfaian and Harvey Rosen, "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, vol. 102, no. 1 (February 1994), pp. 53-75.
  31. B. Douglas Bernheim, "Does the Estate Tax Raise Revenue?" in Lawrence H. Summers, ed., Tax Policy and the Economy 1 (Cambridge, Mass.: MIT Press, 1987), pp. 113-38.
  32. Gerald P. Moran, "Estate and Gift Taxation: The Case for Repeal," Tax Notes, vol. 13 (August 17, 1981), pp. 339-43.
  33. Edward J. McCaffrey, "The Uneasy Case for Wealth Transfer Taxation," Yale Law Journal, vol. 104, no. 2 (November 1994), pp. 283-365; Joel C. Dobris, "A Brief for the Abolition of All Transfer Taxes," Syracuse Law Review, vol. 35, no. 4 (1984), pp. 1215-34; Charles O. Galvin, "To Bury the Estate Tax, Not to Praise It," Tax Notes, vol. 52, no. 12 (September 16, 1991), pp. 1413-19; Christopher E. Erblich, "To Bury Federal Transfer Taxes without Further Adieu," Seton Hall Law Review, vol. 24, no. 4 (1994), pp. 1931-68; and Bruce Bartlett, "The End of the Estate Tax?" Tax Notes, vol. 76, no. 1 (July 7, 1997), pp. 105-10.
  34. Robert L. Moore, "Aspects of the Tax Treatment of Expenditures for Higher Education," Tax Notes, vol. 75, no. 4 (April 28, 1997), pp. 565-71.
  35. Thomas J. Kane, "Beyond Tax Relief: Long-Term Challenges in Financing Higher Education," National Tax Journal, vol. 50, no. 2 (June 1997), pp. 335-49; Michael S. McPherson and Morton Owen Schapiro, "Financing Undergraduate Education: Designing National Policies," National Tax Journal, vol. 50, no. 3 (September 1997), pp. 557-71.
  36. Julie-Anne Cronin, "The Economic Effects and Beneficiaries of the Administration's Proposed Higher Education Tax Subsidies," National Tax Journal, vol. 50, no. 3 (September 1997), pp. 519-40.
  37. Peter Passell, "A Break for Students," New York Times, July 15, 1997.
  38. See, for example, NCPA Policy Report No. 112, National Center for Policy Analysis, April 1991.
  39. Greg Hitt, "Airlines Taxi into Position around Capitol Hill as Lawmakers Make Decisions on Ticket Taxes," Wall Street Journal, July 9, 1997.
  40. Tax Foundation, Tax Features, vol. 41, no. 6 (June 1997), p. 1.
  41. Joy L. Townsend, "Cigarette Tax, Economic Welfare and Social Class Patterns of Smoking," Applied Economics, vol. 19, no. 3 (March 1987), pp. 355-65.
  42. Sue A. Blevins, "Will a Cigarette Tax Increase Really Help Uninsured Children?" Brief Analysis No. 231, National Center for Policy Analysis, May 23, 1997.
  43. Jendi B. Reiter, "Citizens or Sinners? The Economic and Political Inequity of 'Sin Taxes' on Tobacco and Alcohol Products," Columbia Journal of Law and Social Problems, vol. 29, no. 3 (Spring 1996), pp. 443-68.
  44. U.S. Congress, Joint Committee on Taxation, Distributional Effects of the Revenue Reconciliation Provisions Contained in the Senate Finance Committee Chairman's Mark, JCX-34-97, June 17, 1997.
  45. See Michael J. Graetz, "Paint-by-Numbers Tax Lawmaking," Columbia Law Review, vol. 95, no. 3 (April 1995), pp 609-82; Thomas A. Barthold, "How Should We Measure Distribution?" National Tax Journal, vol. 46, no. 3 (September 1993), pp. 291-99; R. Glenn Hubbard, "On the Use of 'Distribution Tables' in the Tax Policy Process," National Tax Journal, vol. 46, no. 4 (December 1993), pp. 527-37; Martin Feldstein, "Imputing Corporate Tax Liabilities to Individual Taxpayers," National Tax Journal, vol. 41, no. 1 (March 1988), pp. 37-59; John Sabelhaus, "What Is the Distributional Burden of Taxing Consumption?" National Tax Journal, vol. 46, no. 3 (September 1993), pp. 331-44; Don Fullerton and Diane Lim Rogers, Who Bears the Lifetime Tax Burden? (Washington: Brookings Institution, 1993); and Albert J. Davis, "Measuring the Distributional Effects of Tax Changes for the Congress," National Tax Journal, vol. 44, no. 3 (September 1991), pp. 257-68.

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