• a $1,900 increase for a $40,000 income family with two children (a whopping 4,296 percent leap);
• a $1,700 increase for a $60,000 income family with two children (a 60 percent boost);
• a $1,700 hike for a $75,000 income family
with two children (a 36 percent increase);
• a $720 boost for retirees earning $40,000 (a
107 percent hike); and
• a $2,400 boost for retirees earning roughly
$80,000 (a 32 percent increase).
The OTA projections suggest that other taxpayers would be affected as well, including:
• about $1,800 in restored taxes for roughly
79 million women;
• an added $870 in taxes for 10 million single
mothers;
• another $2,900 in tax liability for small business owners; and
• a return to the tax rolls for five million individuals who pay no income taxes.
Back to Basics
Dean argued that rather than help the economy
as promised, the administration’s tax policies
were designed to deplete the federal fisc and
force state governments to pick up the financial
slack.
“The real effect of the Bush tax cuts has actually been to raise taxes on most middle-class people
and to cut their services,” he said. “I believe their
purpose is essentially to defund the federal government so that Medicare and Social Security, the
icons of the New Deal, will be undone.”
According to Dean, most taxpayers would
trade higher taxes tomorrow for a more solid
economy today. “I think most Americans would
gladly pay the same taxes they paid when Bill
Clinton was president if they could only have the
same economy they had when Bill Clinton was
president,” he said.
‘The real effect of the Bush tax cuts
has actually been to raise taxes on
most middle-class people and to cut
their services,’ Dean said.
To produce a real economic recovery, Dean
said, lawmakers would have to “get rid of the tax
cuts, all of them” and curb spending growth. He
also said he would be willing to “entertain” raising the Social Security retirement age to 68 and
raising the OASDI tax threshold from the current
$87,000 to the first $100,000 of employment income to help forestall the approaching Social Security crisis.
TAX NOTES, June 30, 2003
ECONOMIC ANALYSIS
The Decline and Fall of
Distribution Analysis
By Martin A. Sullivan
[e-mail comments to [email protected]]
In the late 1990s, both the Joint Committee on
Taxation and the Treasury Department’s Office of
Tax Analysis produced numerous distribution
analyses of the highest professional quality. Since
that time, the number and quality of publicly
released distribution analyses have declined
sharply. In effect, the two government bodies
most qualified to conduct these politically sensitive analyses have reduced their production to
insignificant levels.
These are strong conclusions about the central
issue of tax policy: the perception of fairness. So
they need to be justified. Accordingly, we offer
the following three observations.
Observation 1: JCT Production Slowdown
The JCT has not publicly released a distribution analysis of legislation in more two years. The
last distribution analysis of tax legislation
released by the JCT that appears either on its Web
site or in official House, Senate, or conference
committee reports was released on May 26, 2001
(“Distributional Effects of the Conference Agreement for H.R. 1836,” JCX-52-01).
Should that be considered unusual? The figure
on p. 1870 shows data on the number of JCT
distribution analyses from 1989 through 2003.
During the highly partisan debates between a Republican president and a Democratic Congress in
1989-1990, the JCT released nine revenue tables.
And during the tempestuous “class warfare”
debates between a Democratic president and a
Republican Congress, the JCT released a total of
17 tables over the four years from 1997 through
2000.
But for the six years from 1991 through 1996,
the JCT did not release any distribution tables.
That is partially explained by the general reduction in estimation and legislative activity (as
evidenced by the reduced number of revenue estimates, also shown in the figure).
Of course, the Omnibus Budget Reconciliation
Act of 1993 was a major piece of tax legislation,
and it appears the JCT did not publicly provide
distribution estimates for that bill. The “excuse”
might be that this tax increase — which placed
major new tax burdens on taxpayers in the
highest income categories — was thoroughly
analyzed by the Clinton Treasury. At any rate,
there is no indication that the JCT at the time was
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NEWS
shying away from estimating distribution effects.
In the spring of 1993, the committee staff publ i s h ed a s c h o l a r ly b o ok - l en g t h rep o r t
(“Methodology and Issues in Measuring Changes
in the Distribution of Tax Burdens,” JCS-7-93,
June 14, 1993). This study provided an in-depth
explanation and analysis of how the staff estimated the distribution of the burden of changes
in tax law across income categories.
There can be little doubt that the JCT
in recent years is keeping a much
lower profile in this area.
Notwithstanding the JCT’s lack of published
distribution analysis in 1993, the committee staff
had — until recently — released distribution
analyses for every other major tax bill since 1981.
(See the list on p. 1871.) On balance, just looking
at the numbers, the JCT’s distribution analysis
production does not necessarily indicate a change
in policy about its commitment to the production
of distribution tables. But there can be little doubt
that the JCT in recent years is keeping a much
lower profile in this area. It used to be the center
of attention when debates about distribution
heated up. That is no longer the case.
There can be little doubt this is pleasing to
Republicans in the House and the Senate who
ultimately control the committee. Conversely,
1870
this is not a positive development for Democrats
and liberals who would like to keep attention
focused on the significant tax benefits Republican
tax legislation confers on high-income taxpayers.
To obtain factual information about the distributional impact of tax bills, legislators now must
look to two think tanks, both sometimes said to
be left-leaning, that have stepped up their
releases of distribution analyses to fill the gap left
by official estimators. These organizations —
Citizens for Tax Justice (http://www.ctj.org) and
t h e U r b an - B roo k in g s Ta x P olic y C en te r
(http://www.taxpolicycenter. org) — produce
highly credible distribution analyses. But because
of their perceived political orientation, it has been
easy for Republicans in debates intended for editing into sound bites to dismiss these unofficial
estimates as biased.
Observation 2: Biases and Shortcomings of
JCT Estimates
Most of a more recent (that is, vintage 2001)
distribution analyses released by the JCT were of
proposals that included significant estate tax
relief. But the JCT’s tables omitted the effects of
estate tax relief. There is much legitimate debate
among economists about the proper treatment of
estate tax in tax burden distribution analyses. In
particular, it is unclear whether the burden of the
estate tax should be modeled as falling on decedents or descendants. (In general, both the JCT
TAX NOTES, June 30, 2003
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NEWS
JCT Distribution Analyses of Major
Tax Legislation Since 1981
Major Tax Legislation
Economic Recovery Tax Act of 1981
(P.L. 97-34)
Tax Reform Act of 1986 (P.L. 99-514)
JCT Distribution
Analysis?
Yes
Yes
Omnibus Budget Reconciliation Act
of 1990 (P.L. 101-508)
Yes
Omnibus Budget Reconciliation Act
of 1993 (P.L. 103-66)
Taxpayer Relief Act of 1997
(P.L. 105-34)
No
Economic Growth and Tax Relief
Reconciliation Act of 2001
(P.L. 107-16)
Job Creation and Worker Assistance
Act of 2002 (P.L. 107-147)
The Jobs and Growth Tax Relief
Reconciliation Act of 2003
(P.L. 108-27)
* No distribution table released by the JCT in
Yes
Yes*
“Distributional Effects of the Conference
Agreement on the Revenue Reconciliation
Provisions of H.R.2014, the ‘Taxpayer Relief Act
of 1997’” (JCX-41-97), September 4, 1997.
“Distributional Effects of the Conference
Agreem.ent for H.R. 1836” (JCX-52-01), May 26,
2001.
No
No
2001 included the important effects of estate tax relief.
and Treasury in the past have placed the burden
on decedents.) At any rate, there is no question
that the burden of the estate tax falls primarily
on the wealthy, and so the Republican-proposed
repeal of the estate tax would provide a benefit
that would overwhelmingly favor the rich. The
JCT’s decision to exclude the distributional effects of the estate tax from its distribution
analyses of legislation that included repeal of the
estate tax severely biases its presentation. The
result is a distribution table that presented a distorted picture. Much of the 2001 tax bill’s benefits
to the richest Americans is simply ignored. Because the table is so biased, it is — despite the
considerable effort put into it by staff economists
— practically worthless. If one accepts that conclusion, it readily follows that the JCT has not
released a meaningful distribution analysis since
2000.
Observation 3: Biases and Shortcomings of
Treasury Estimates
During the 1990s the Treasury Department invested enormous resources in the development
of its distribution analysis. The result of that considerable effort was the most advanced distributional tables ever produced. One of the best
papers ever written on the practical problems of
TAX NOTES, June 30, 2003
Citation
“Burden Tables — 1982, 1983, and 1984”
(JCX-22-81), August 3, 1981.
“Data on Distribution by Income Class of Effects
of the Tax Reform Act of 1986” (JCX-28-86),
October 1, 1986.
“Summary of Distributional Effects, By Income
Category — Budget Reconciliation (H.R.5835) —
Revenue Provisions as Reported by the
Conferees” (JCX-46-90), October 26, 1990.
distribution analysis was released by Treasury
staff in 1999. (Julie-Ann Cronin, U.S. Treasury
Distributional Analysis, OTA Working Paper No.
8 5, S ep t e mb er 19 99 , ava ila b le on lin e a t
http://www.ustreas.gov/offices/tax-policy/
library/ota85.pdf.) The paper describes in detail
Treasury’s awesome capabilities for producing
comprehensive distribution analysis.
In particular, the Treasury Department attacked and overcame the problem of proper treatment
of different taxpaying units. In its distributional
analyses, the JCT — because of extremely difficult problems with the underlying data — treats
a single individual earning $20,000 of income the
same as a married individual earning $20,000 but
who, for example, might have a spouse earning
$200,000. The Treasury Department in the 1990s
overcame those data problems and was able to
reorganize all of its data so that family status was
fully recognized, as were all family members.
Despite all of the staff’s capabilities made possible by years of research and model development, the Treasury Department now releases only
the most rudimentary of distributional analyses.
It no longer measures the effect of all tax changes
with overall taxes as its point of reference. Now
the Treasury Department just measures the effect
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NEWS
of all income tax changes with total income tax
as its point of reference.
The repackaging of the distribution analysis is
clearly politically motivated by the arrival of
Bush administration officials in the White House
and in the Treasury. This questionable and misleading practice was employed in the Bush election campaign. While almost anything goes
during the heat of a political campaign, it was
shocking to see the prestige of the Treasury staff
compromised with the release on March 8, 2001,
of a similar “income tax only” analysis.
Despite all of the staff’s capabilities,
the Treasury Department now releases
only the most rudimentary of
distributional analyses.
The White House loves this type of limited
analysis because it allows statements to the effect
that the president’s tax plan eliminates or greatly
reduces income taxes for some moderate-income
families. What the administration does not stress
is that those families pay little income tax currently but pay a relatively large amount of
payroll tax. Thus, the percentage reduction in
their income tax is large — and it is larger than
the percentage reduction in income taxes for
high-income families. If Treasury’s prior and
more complete methodology (including all taxes)
was employed, it would show upper-income
families receiving a relatively larger reduction in
taxes than low-income families. The analyses become even more misleading when the White
House politicians omit the little word “income”
in its description of the Treasury analysis. Here
is the complete text of a March 8, 2001, press
release from the White House:
The distribution tables released today by the
U.S. Department of the Treasury confirm
that President Bush’s tax plan provides the
mo st h elp t o low an d modest in c ome
Americans. Under the President’s plan, individuals making between $30,000 and
$40,000 a year pay only 2.5 percent of current taxes and would receive a 38 percent
reduction in their tax burden. Individuals
making more than $200,000 pay 43 percent
of the taxes and would see their tax burden
lowered by 8.7 percent. President Bush’s
plan is fair, responsible and will help those
who need it most. (See 2001 TNT 47-22 or
Doc 2001-7008 (1 original page).)
Treasury’s analysis was so embarrassingly
poor and so biased, we thought we had seen the
last of its kind. But the Treasury again used the
misleading approach of solely analyzing income
1872
taxes in examining the effects of tax law changes
in its January 7, 2003, distribution table (on the
tax plan in the president’s budget) (2003 TNT 5-21
or Doc 2003-834 (1 original page)) and in its May
22, 2003, distribution table (on the final conference agreement of the congressional version of
the tax plan) (2003 TNT 100-17 or Doc 2003-12880
(2 original pages).)
And in a new application of the “income tax
only” approach to distribution analysis, the Treasury Department is providing the press with case
studies of the combined effects of the 2002 and
2003 tax cuts on middle-income families. But in
what can only be characterized as egregious use
of misinformation, the Treasury Department frequently omits from its explanation that it is looking only at income taxes. Here are two of six
examples from a June 20, 2003, Treasury press
release. (See 2003 TNT 121-16 or Doc 2003-15184
(7 original pages).)
Example 1:
If EGTRRA [Economic Growth and Tax
Relief Reconciliation Act of 2001] & JGTRRA
[Jobs and Growth Tax Relief Reconciliation
Act of 2003] were repealed, a married couple
with one child and income of $40,000 will
see their taxes increase by $1,433 (from
$1,503 to $2,935), an increase of 95 percent.
Example 2:
If EGTRRA & JGTRRA were repealed, a married couple with two children and income of
$40,000 will see their taxes increase by $1,933
(from $45 to $1,978), an increase of 4,296 percent.
The other four examples are largely the same.
The “detailed charts” the Treasury provides
below these summary statements make it clear that
these percentage changes apply only to income
taxes, but it is irresponsible for the Treasury to gloss
over such an important point in a press release that
no doubt was reviewed dozens of times. Again, if
Treasury had simply inserted the word “income”
before the word “taxes,” its presentation would not
have been so deceptive. If this continues, the Treasury’s Office of Tax Policy (OTP) may have to
change its name to the Office of Tax Propaganda.
More Here, Less There
Because tax law changes are so complex, public
scrutiny is greatly aided by factual information
about tax legislation — particularly if it is the
usual high-quality, high-prestige analyses provided by the JCT and the Treasury. One way to
get more information to the public (and to members of Congress) is for the JCT and Treasury to
provide more analysis of the macroeconomic effects of tax bills. With much fanfare, conservaTAX NOTES, June 30, 2003
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NEWS
tives have been pushing for “dynamic” analysis
and estimation for years, and recently they have
made considerable inroads. But at the same time,
conservatives in the executive and legislative
branches have been quietly snuffing the life out
of analysis that examines tax bills’ effects on the
tax burdens of the poor relative to the rich. It is
inconsistent for conservatives to push for more
information about “efficiency” and less about
“equity.” Perhaps, for Democrats, it’s time to
argue more for the return of sound distribution
analy sis ins tead of ju st opposing dy namic
analysis efforts.
Prior Coverage
For prior coverage of distributional analysis,
see “How to Read Tax Distribution Tables,” Tax
Notes, Mar. 26, 2001, p. 1747; “Keeping Score on
Class Warfare: JCT and Treasury Are Miles
Apart,” Tax Notes, Aug. 16, 1999, p. 963; “Computer Bytes to Sound Bites: JCT & Treasury
Analyses of CWATRA,” Tax Notes, Apr. 17, 1995,
p. 319.
Democrats Decry Lack of
Resolution on Child Credit
By Patti Mohr — [email protected]
Closing its doors last week to recess for the
July Fourth holiday, Congress shelved tax-related
items such as the refundable child credit until
members return to work on July 8.
With the exception of House action on a $174
billion health care savings bill (see story on p.
1875), Congress eased off on an active tax cut
agenda to shift attention to a major overhaul of
the Medicare system.
No Resolution on the Child Credit
Senate Finance Committee Chair Charles E.
Grassley, R-Iowa, and House Ways and Means
Committee Chair William M. Thomas, R-Calif.,
said they did not have time last week to resolve
their chambers’ differences over competing bills
(H.R. 1308) to extend the child credit. Grassley
said h e c ou ld not beg in talks with H ous e
taxwriters about tax issues until after members
return to work on July 8.
Democrats criticized the delay as an inexcusable act and did what they could to force the
issue. They drew attention to the 12 million children of 6.5 million families who were “left out”
of the acceleration of the child credit in the latest
tax cut, the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA; P.L. 108-27).
Democrats criticized the delay as an
inexcusable act and did what they
could to force the issue.
JGTRRA instructs Treasury and the IRS to
begin mailing checks to income-tax-paying
families this summer. Since the law’s enactment,
the House and Senate have been deadlocked on
two bills to extend the credit with refundability
provisions. The Senate would advance to 2003 the
refundable credit to low-income people, raise the
phaseout threshold, provide a single tax code
definition of a child, and extend $10 billion worth
of Customs user fees; the House would spend $82
billion expanding the refundable child credit,
raise the phaseout threshold, and make the credit
effective through 2010.
Democrats say Congress needs to act soon to
ensure that low-income families also receive
checks.
“They may not get the check [by September],
but if we can say the check’s in the mail, I think
that would be a much better situation than what
TAX NOTES, June 30, 2003
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