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Bush Tax Plan Leaves Out One Fifth of Wisconsin Families

March 6, 2001
CONTACTS:
Wisconsin Budget Project -- Jon Peacock (608) 284-0580 (307)
Center on Budget and Policy Priorities -- Jim Jaffe or Michelle Bazie (202) 408-1080

BUSH TAX PLAN LEAVES OUT ONE FIFTH OF WISCONSIN FAMILIES

One-fifth of the children in Wisconsin live in families that would not receive any tax reduction from the President’s tax proposal, according to a new analysis from the Center on Budget and Policy Priorities, a Washington, D.C. policy institute.

The report indicates that about 316,000 children in 157,000 Wisconsin families would not benefit from the Bush tax plan. The vast majority of these families, 78 percent, include a worker.

Most other states have even higher percentages of families that would not benefit. In 12 states plus the District of Columbia, at least 40 percent of children live in such families.

The analysis uses Census Bureau data to estimate, on a state-by-state basis, the number of families and children under age 18 who would receive no tax relief from the Bush plan because these families’ incomes are too low for them to owe federal income taxes. The large majority of these families, however, work and pay payroll taxes and other taxes unaffected by the Bush proposal. The Bush plan reduces only income taxes and taxes on large estates.

More than a fifth of the tax plan’s cost in 2002 comes from phasing out of the estate tax. According to Jon Peacock, Director of the Wisconsin Budget Project of the Wisconsin Council on Children and Families, the tax savings from eliminating the estate tax would go to only about 600 Wisconsin estates each year.

“Phasing out the estate tax would reduce the revenue available for federal programs by $6 billion next year and eventually more than $60 billion per year, yet it would benefit only about 1.4 percent of the estates in Wisconsin,” Peacock said.

Nationwide, an estimated 12.2 million low- and moderate-income families with children — 31.5 percent of all families with children — would not receive any tax reduction from the Bush proposal. This finding in the CBPP report is consistent with independent analyses conducted by researchers at the Brookings Institution, the Urban Institute, and the Institute on Taxation and Economic Policy. The majority of the excluded families include workers.

Even the part of the Bush tax plan that would double the child tax credit would leave out these families, while providing the largest tax reductions to families with incomes between $110,000 and $250,000.

Why Help Families Who Don’t Owe Federal Income Taxes?

Some argue that families who do not owe federal income taxes should not benefit from the tax plan. This argument has several flaws, according to the Center’s report:

• A significant number of these families owe federal taxes other than federal income taxes, often in significant amounts. In fact, data from the Congressional Budget Office show that in 1999, three-fourths of all U.S. families paid more in federal payroll taxes than in federal income taxes.
• Low- and moderate-income families in every state pay state and local taxes, typically including sales taxes, excise taxes on such items as gasoline, and property taxes (which landlords pass on to tenants as higher rents).
• Redesigning the plan to provide low-income workers a boost in after-tax income would further the objective of helping families lift themselves out of poverty? This objective is a key theme of welfare reform.
• The Bush approach fails to reduce the high marginal tax rates that many low-income families face. For example, families with incomes between about $13,000 and $20,000 lose more than 50 cents in increased taxes and foregone benefits for every additional dollar they earn, but the Bush plan would not reduce these rates. Nor would the plan provide any marriage penalty tax relief to low-income working families, although they can face some of the highest marriage tax penalties of any families.

“Far more Wisconsin families could benefit if Congress took the time to study the Bush tax plan and redesign it,” Peacock said. “A much less costly plan could be developed that would benefit taxpayers at almost all income levels”, he added.

Peacock cited examples of ways that a smaller tax cut package could be expanded to cover far more working families:

• Making the federal dependent care tax credit refundable.
• Making the child tax credit refundable.
• Removing the current marriage penalty in the Earned Income Tax Credit (EITC).
• Phasing out the Earned Income Tax Credit more slowly, or extending it to all families with children.
• Providing a larger federal EITC for families with three or more children – as Wisconsin has done with the state EITC.

“Scaling back the size of the cuts is also critical to ensuring that adequate federal revenue is available for programs such as health care and education that benefit families at all income levels,” said Anne Arnesen, executive Director of the Wisconsin Council on Children and Families.

The full text of the CBPP report is available at the Center’s website, http://www.cbpp.org.