[Congressional Record Volume 147, Number 18 (Thursday, February 8, 2001)]
[Senate]
[Pages S1206-S1207]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                TAX CUTS

  Mr. WELLSTONE. Mr. President, a study by the Center on Budget and 
Policy Priorities just came out. I want to read one statistic. This is 
Bob Greenstein's organization. Bob received one of those McArthur 
genius grants. He deserves it. This data on the tax cuts is so 
important. It says:

       An estimated 12.2 million low- and moderate-income families 
     with children--31.5 percent of all families--would not 
     receive any tax cut from the Bush proposal . . . .

  Approximately 24.1 million children--33 percent of all the children 
in the country--live in these families, and among African Americans and 
Hispanics, the figures are even more striking: 55 percent of African 
American children and 56 percent of Hispanic children will receive no 
tax break at all because it is not refundable. We have to live up to 
our words of ``leave no child behind.''
  I ask unanimous consent that this study by the Center on Budget and 
Policy Priorities be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

    [From the Center on Budget and Policy Priorities, Feb. 7, 2001.]

  An Estimated 12 Million Low- and Moderate-Income Families--With 24 
         Million Children--Would Not Benefit From Bush Tax Plan

             (By Isaac Shapiro, Allen Dupree and James Sly)

       About 12 million low- and moderate-income families with 
     children--nearly one in every three U.S. families--would not 
     receive any assistance from the tax provisions that President 
     Bush is likely to send to Congress on February 8. An 
     estimated 24 million children under age 18--one in every 
     three children--live in these families.
       For certain groups, the proportions of families and 
     children not benefitting from the plan are higher. A majority 
     of black and Hispanic children live in families that would 
     not benefit from the plan. For these families and their 
     children, the tax package neither raises after-tax income nor 
     reduces their frequently high marginal tax rates.
       This analysis investigates these figures in more detail and 
     then examines the reason that so many families and children 
     do not benefit--the families have incomes too low to owe 
     federal income taxes. This leads to a discussion of whether 
     families that do not owe income taxes should benefit from a 
     large tax-cut proposal and the extent to which they owe taxes 
     other than income taxes, most notably the payroll tax.


                         Who Would Be Excluded?

       We examined the latest data from the Census Bureau to 
     estimate the number of families and children under 18 who 
     would receive no assistance from the Bush tax plan. The data 
     are for 1999. We examined the Bush plan as proposed in the 
     campaign and recently introduced by Senators Gramm and 
     Miller; our analysis considers the effects of the plan as if 
     it were in full effect in 1999.
       The findings of this analysis are consistent with an 
     independent analysis of who is left out of the Bush plan that 
     has been conducted by researchers at the Brookings 
     Institution and with data from the tax model of the Institute 
     on Taxation and Economic Policy. The findings of the 
     Brookings researchers (as part of a general analysis of tax 
     ideas to assist working families that will be published later 
     this week) and the unpublished data from the Institute on 
     Taxation and Economic Policy both indicate that nearly one in 
     three families would not receive any assistance from the 
     Administration's proposal.
       The key findings of our analysis include:
       An estimated 12.2 million low- and moderate-income families 
     with children--31.5 percent of all families--would not 
     receive any tax cut from the Bush proposal. Some 80 percent 
     of these families have workers.
       Approximately 24.1 million children--33.5 percent of all 
     children--live in the excluded families.
       Among African-Americans and Hispanics, the figures are 
     especially striking. While one-third of all children would 
     not benefit from the Bush tax plan, more than half of black 
     and Hispanic children would not receive any assistance. An 
     estimated 55 percent of African-American children and 56 
     percent of Hispanic children live in families that would 
     receive nothing from the tax cut.
       Of the 24.1 million children living in families that would 
     receive no benefit from the tax cuts, an estimated 10.1 
     million are non-Hispanic whites, 6.1 million are black, and 
     6.5 million are Hispanic.
       Even the Bush proposal to double the child tax credit--the 
     feature of his tax plan that one might expect to provide the 
     most assistance to children in low- and moderate-income 
     families--would be of little or no help to many of them. This 
     proposal would provide the largest tax reductions to families 
     with incomes in the $100,000 to $200,000 range and confer a 
     much larger share of its benefits on upper-income families 
     than on low- and middle-income families.
       Under the Bush plan, the maximum child credit would be 
     raised from $500 per child to $1,000. Filers with incomes in 
     the $110,000 to $200,000 range would benefit the most from 
     this proposal because the proposal raises the income level 
     above which the child credit phases out from $110,000 to 
     $200,000 extending the credit for the first time to those in 
     this income category. For many of these relatively affluent 
     taxpayers, the child credit would rise from zero to $1,000 
     per child. By contrast, millions of children in low- and 
     moderate-income working families would continue to receive no 
     child credit, or their credit would remain at its current 
     level of $500 per child or rise to less than $1,000 per child 
     (because their families would have insufficient income tax 
     liability against which to apply the increase in the child 
     credit).
       As a consequence, Institute on Taxation and Economic Policy 
     data indicate that when the increase in the child credit is 
     fully in effect:
       Some 82 percent of the benefits from the child credit 
     proposal would accrue to the 40 percent of families with the 
     highest incomes. Only three percent of the benefits from this 
     proposal would accrue to the bottom 40 percent of families.
       The top 20 percent of families would receive 46 percent of 
     the tax-cut benefits from this proposal, a larger share than 
     any fifth of the population would receive.


                     Why families would not benefit

       During 2000, Bush campaign officials touted their tax-cut 
     plan as benefitting lower-income taxpayers substantially in 
     two key ways--by doubling the child credit to $1,000 per 
     child and by establishing a new 10 percent tax-rate bracket. 
     Some married families also would benefit from the plan's two 
     earner deduction. None of these features, however, affect a 
     family that has no income tax liability before the Earned 
     Income Tax Credit is computed.
       A large number of families fall into this category. As a 
     result of the combination of the standard deduction (or 
     itemized deductions if a family itemizes), the personal 
     exemption, and existing credits such as the child tax credit, 
     these families do not owe

[[Page S1207]]

     federal income taxes. (As described below, these families can 
     pay substantial amounts in other taxes, such as payroll and 
     excise taxes, even after the Earned Income Tax Credit is 
     taken into account.)
       The level at which families now begin to pay federal income 
     taxes is approximately 130 percent to 160 percent of the 
     poverty line, depending on family type and family size. For 
     example, in 2001, a two-parent family of four does not begin 
     to owe income tax--and thus does not begin to benefit from 
     the Bush plan--until its income reaches $25,870, some 44 
     percent above the poverty line of $17,950. Families below the 
     poverty line would receive no assistance from the tax cut. 
     Nor would many families modestly above the poverty line.
       The framers of the Bush plan could have assisted low-income 
     working families by improving the EITC. Alternatively, the 
     Bush plan could have expanded the dependent and child care 
     tax credit and made it available to the low-income working 
     families who currently are denied access to this credit 
     because it is not refundable. Or, the plan could have 
     increased the degree to which the child tax credit is 
     refundable. The plan takes none of these steps.


                     What families should benefit?

       Since the reason 12 million families and their children 
     would not benefit from the Bush plan is that they do not owe 
     federal income taxes, some have argued that it is appropriate 
     they not benefit. ``Tax relief should go to those who pay 
     taxes'' is the short-hand version of this argument. This line 
     of reasoning is not persuasive for several reasons.
       1. A significant number of these families owe taxes other 
     than federal income taxes, often paying significant amounts. 
     For most families, their biggest federal tax burden by far is 
     the payroll tax, not the income tax. Data from the 
     Congressional Budget Office indicate that in 1999, three-
     quarters of all U.S. households paid more in federal payroll 
     taxes than in federal income taxes. (This comparison includes 
     both the employee and employer share of the payroll tax; most 
     economists concur that the employer's share of the payroll 
     tax is passed along to workers in the form of lower wages.) 
     Among the bottom fifth of households, 99 percent pay more in 
     payroll than income taxes. Low-income families also pay 
     excise taxes and state and local taxes. While the Earned 
     Income Tax Credit offsets these taxes for most working 
     families with incomes below the poverty line, many families 
     with incomes modestly above the poverty line who would not 
     benefit from the Bush plan are net taxpayers.
       Consider two types of families earning $25,000 a year in 
     2001, an income level the Administration has used in some of 
     its examples:
       A two-parent family of four with income of $25,000 would 
     pay $3,825 in payroll taxes (again, counting both the 
     employee and employer share) and lesser amounts in gasoline 
     and other excise taxes. The family pays various state taxes 
     as well. The family's Earned Income Tax Credit of $1,500 
     would offset well under half of its payroll taxes.
       Even if just payroll taxes and the EITC are considered, the 
     family's net federal tax bill would be $2,325. Nonetheless, 
     this family would receive no tax cut under the Bush plan.
       The Administration has used the example of a waitress who 
     is a single-mother with two children and earns $25,000 a 
     year. If this waitress pays at least $170 a month in child 
     care costs so she can work and support her family--an amount 
     that represents a rather modest expenditure for child care--
     she, too, would receive no tax cut under the Bush plan 
     despite having a significant net tax burden. In her case as 
     well, her payroll taxes would exceed her EITC by $2,325.
       2. The Bush approach fails to reduce the high marginal tax 
     rates that many low-income families face. Throughout the 
     presidential campaign and early into the new Presidency, 
     President Bush and his advisors have cited the need to reduce 
     the high marginal tax rates that many low-income working 
     families face as one of their tax plan's principle goals. 
     They have observed that a significant fraction of each 
     additional dollar these families earn is lost as a result of 
     increased income and payroll taxes and the phasing out of 
     the EITC. Ironically, however, a large number of low-
     income families that confront some of the highest marginal 
     tax rates of any families in the nation would not be aided 
     at all by the Bush plan.
       Analysts across the ideological spectrum have long 
     recognized that the working families who gain the least from 
     each additional dollar earned are those with incomes between 
     about $13,000 and $20,000. For each additional dollar these 
     families earn, they lose up to 21 cents in the EITC, 7.65 
     cents in payroll taxes (15.3 cents if the employer's share of 
     the payroll tax is counted), 24 cents to 36 cents in food 
     stamp benefits, and additional amounts if they receive 
     housing assistance or a child care subsidy on a sliding fee 
     scale or are subject to state income taxes. Their marginal 
     tax rates are well above 50 percent. Yet the Bush plan does 
     not provide any assistance to them.
       Ways to reduce marginal tax rates for such families are 
     available and not especially expensive. They basically entail 
     raising the income level at which the EITC begins to phase 
     down as earnings rise, and/or reducing the rate at which the 
     EITC phases down. Bipartisan legislation introduced last year 
     by Senators Rockefeller, Jeffords, and Breaux follows such a 
     course, as do proposals made by Rep. Ben Cardin and the 
     Clinton Administration.
       3. Consistent with the objective of helping working 
     families lift themselves out of poverty, an additional income 
     boost would be worthwhile. A key theme of welfare reform has 
     been to prod, assist, and enable families to work their way 
     out of poverty. The principle of helping families work their 
     way out of poverty has gained support across the political 
     spectrum. This principle is important for married families 
     and single-parent families, and there is considerable 
     evidence that welfare reform--in combination with a strong 
     economy, low unemployment rates, and the EITC--has 
     significantly increased employment rates among single 
     mothers. Providing increased assistance to the working poor 
     through the tax system could further the goal of making work 
     pay.
       Such assistance is particularly important since much of the 
     recent gains in the earnings of the working poor have been 
     offset by declines in other supports. For example, from 1995 
     to 1999 the poorest 40 percent of families headed by a single 
     mother experienced an average increase in earnings of about 
     $2,300. After accounting for their decrease in means-tested 
     benefits and increases in taxes, their net incomes rose a 
     mere $292. (Both changes are adjusted for inflation.)
       In addition, a study the Manpower Demonstration Research 
     Corporation has just released finds that improving income--
     and not just employment--is important if the lives of 
     children in poor families are to improve. The MDRC report 
     examined five studies covering 11 different welfare reform 
     programs. The report's central finding was that increased 
     employment among the parents in a family did not by itself 
     significantly improve their children's lives. It was only in 
     programs where the parents experienced increased employment 
     and increased income that there were positive effects--such 
     as higher school achievement--for their elementary school-
     aged children.
       4. The rewards from the surplus should be spread throughout 
     the population. The Bush tax package is likely to consume 
     most, if not all, of the available surplus outside Social 
     Security and Medicare. A recent Center on Budget and Policy 
     Priorities analysis pegs the cost of the Bush plan at more 
     than $2 trillion over 10 years, which would exceed the 
     surplus that is likely to be available outside Social 
     Security and Medicare when realistic budget assumptions are 
     used. If large tax cuts are to be provided, it is appropriate 
     to dedicate some portion of those tax cuts to the people with 
     the most pressing needs, such as low-income working families 
     with children.

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