NCPA - National Center for Policy Analysis


October 2, 2006

Americans of every income have benefited from a drop in federal income tax rates as Bush administration tax cuts enacted since 2000 took effect, an independent analysis of newly released IRS data shows.

But those earning $75,000 to $500,000 are shouldering a larger share of total taxes paid as millions more of them earn higher incomes and get hit with the Alternative Minimum Tax, the analysis also found.

According to the Tax Foundation:

  • A taxpayer who earned $35,000 in 2000 would have paid 8.54 percent of that income -- $2,989 after credits -- in federal taxes; in 2004, federal taxes would have accounted for 5.12 percent of that taxpayer's annual income, or $1,792 (that represents a 40 percent decrease in tax burden).
  • At the higher end of the income brackets, a $1.75 million earner would have paid $513,625 in 2000 federal taxes, when the rate for that earning bracket was 29.35 percent; four years later, when the rate dropped to 25 percent, that earner would have paid $437,500 (that represents a 14.8 percent cut in tax burden, the analysis shows).

Millions of upper-middle and moderately high-income earners also benefited from tax rate cuts. But the analysis shows their savings was limited by the Alternative Minimum Tax, which eliminates some deductions and credits they could otherwise claim on federal tax returns. The levy particularly hits those whose high state and local taxes become ineligible for federal tax deductions.

For instance, taxpayers who earned between $100,000 and $200,000 in 2004 paid 22.5 percent of all federal taxes, up from 19.4 percent four years earlier.  Those who earned between $200,000 and $500,000 in 2004 paid 17.9 percent of all federal taxes, up from 15.4 percent in 2000, the analysis showed.

Source: Kevin McCoy, "Income tax cuts benefit all payers," USA Today, October 2, 2006; based upon: Gerald Prante, "New IRS Data Show All Income Groups Have Seen Tax Liabilities Fall Since 2000," Tax Foundation, Fiscal Fact No. 64, September 20, 2006.

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