NCPA - National Center for Policy Analysis

Cutting Taxes for Those Who Don't Pay Them

June 3, 2003

The new $350 billion tax bill exempts another three million-plus low-income workers from any federal tax liability whatsoever. It also expands the 10 percent income tax bracket, meaning that workers can earn more before leaping into the 15 percent and 25 percent brackets.

However, some workers who owe no federal taxes are not eligible for the bill's increased child tax credit of $1,000 for families with children. These families were not eligible for the partially refundable $600 child credit in the 2001 tax bill, but they do receive the Earned Income Tax Credit (EITC).

  • Sen. Charles Grassley (R-Iowa) wants to make low income families who owe no federal income taxes eligible for the child tax credit, by making it refundable.
  • These families do receive the EITC, which was designed to offset payroll taxes and is also refundable -- which means the government writes a check to people whose income after deductions is too low to owe any taxes.
  • This includes families with about one in six children.
  • In 2000, EITC payments totaled $31.8 billion for 19.2 million Americans, for an average credit of $1,658. Some 86 percent of the EITC went to workers who had little or no income tax liability.

Since refundable credits phase out as income rises, they raise marginal tax rates on workers with incomes in the phase-out range.

Critics of the tax bill have complained that most of its benefits go to higher income workers, but that is because they pay most income taxes:

  • Internal Revenue Service data released late last year show that the top 1 percent of earners paid 37.4 percent of all federal income taxes in 2000.
  • The top 5 percent paid 56.5 percent of federal taxes, and the top half of all earners paid 96.1 percent.

In other words, even before President Bush started slashing taxes on the poor by increasing the child tax credit in 2001, the bottom 50 percent of filers had next to no federal income tax liability.

Source: Editorial, "Even Luckier Duckies," Review & Outlook, Wall Street Journal, June 3, 2003.

For WSJ text (requires subscription),,SB10546063779007100,00.html


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