NCPA - National Center for Policy Analysis


November 8, 2004

The Congressional Budget Office (CBO) has issued a study examining how the 2001, 2002 and 2003 tax cuts altered effective federal tax rates on households of various income levels. Contrary to many media reports, the CBO?s main finding is that the three pieces of legislation provide tax relief to people at all income levels, including the middle class:

  • Average income tax rates in 2004 will fall by 1.4 percentage points for the lowest 20 percent (quintile) of households, by 2.0 percentage points for the second quintile, and by 1.7 percentage points for the middle quintile.
  • Over the life of the tax cuts, the bottom three quintiles will pay a lower share of the total tax, while the fourth and particularly the top quintile will pay a higher share.

The CBO report underscores the progressiveness of the tax code. In 2004, the top 1 percent of income earners will pay almost 33 percent of federal income taxes, while the top 10 percent will pay about 66 percent. Meanwhile, the bottom 40 percent will have negative income taxes -- that is, they will receive money from the government.

Source: Stephen J. Entin, "Congressional Budget Office Study Shows Tax Cuts Helping All, Including the Middle Class," Institute for Research on the Economics of Taxation, August 31, 2004.


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