NCPA - National Center for Policy Analysis

Re-Learning Tax Cut Lessons

March 1, 1999

Last week the press reported that Republican congressional leaders had abandoned their support for a 10 percent reduction in tax rates this year. According to the press accounts, they concluded that the votes were not there for such legislation after several House Republicans announced their opposition.

Unfortunately, there are few Republicans left in Congress who went through the debate on tax policy in 1980 and 1981 that led to passage of the Reagan 25 percent across-the-board tax cut. The lessons of that fight have simply been lost and forgotten. If Republicans are ever again to pass a major tax rate reduction, those lessons must be relearned.

The most important lesson that needs to be relearned is that only taxpayers pay taxes. Tax cuts by definition only benefit those who pay them. And the fact is that those with low incomes basically pay no income taxes.

  • Of the 65 million tax filers with incomes below $30,000 in 1998, only 22 million paid any federal income taxes at all.
  • Overall, 48 million of the nation's 134 million tax filers paid no income taxes last year.
  • The vast bulk of all federal income taxes are paid by those with high incomes, with 62 percent of all federal income taxes being paid by those with incomes above $100,000.

Every taxpayer benefits to exactly the same degree, receiving the same percentage tax reduction. A 10 percent tax rate reduction will save someone paying $500 in federal income taxes $50 per year; someone paying $50,000 in taxes will save $5,000. The only reason the well-to-do get a larger tax cut in dollar terms is because they pay more taxes to begin with.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, March 1, 1999.

 

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