NCPA - National Center for Policy Analysis

Distribution Of Tax Burdens And Tax Cuts

August 2, 1999

The proposed Republican tax cut is "too big" only in the sense that it makes less of the surplus available for Democrat spending plans, such as the $111 billion prescription drug benefit Bill Clinton has proposed. What really bothers Democrats is that some of the tax cuts accrue to those with upper incomes.

Republicans counter that those with upper incomes pay the vast bulk of federal income taxes, while those with low incomes pay virtually nothing.

  • The Treasury Department concedes that 85 percent of all federal taxes are paid by the top 40 percent of families, those with incomes above $49,862.
  • Those with incomes below this level -- 60 percent of all families -- pay just 15 percent of all taxes.
  • Therefore, it is basically impossible to cut taxes without giving disproportionate benefits to those at the top of the income distribution.

In any event, even the House tax bill, which is tilted more toward the wealthy than the Senate bill, does virtually nothing to change the existing distribution of taxes.

Tax policy can only directly help those who actually pay taxes. The only way to help those who don't is by sending government checks to such people and calling them "tax cuts." This is exactly what the government does with the Earned Income Tax Credit, which is "refundable" for those with no tax liability.

However, those at the bottom of the income distribution do benefit indirectly from tax cuts. When tax cuts stimulate greater saving, investment and work effort by those at the top it creates jobs and raises wages for those at the bottom. Full employment and high wages are clearly a better way of helping those with low incomes than more government hand-outs.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, August 2, 1999.


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