Who got the tax cuts?

Published: April 15, 2004

In a remarkable opinion poll released this week, as Americans were filing their Form 1040s, some two-thirds of respondents told the Associated Press that their federal taxes have gone up or remained the same during the last three years.

Domestic advisers at the White House must be spitting tacks. Three historic tax bills, proposed by President Bush and passed by Congress in 2001, 2002 and 2003, have delivered the biggest federal tax cut since Ronald Reagan took office more than 20 years ago. The federal tax burden today, measured as a share of national income, has sunk to its lowest level since 1950. Don't taxpayers know what's good for them?

Actually, they do. For the tax packages passed by Congress these last three years have overwhelmingly handed out tax relief to the rich, with only hit-and-miss benefits for the middle class.

The Center on Budget and Policy Priorities, a Washington think tank, estimated this week that households in the middle of the income distribution will get an average tax cut of $647 this year, while those in the top 1 percent will get a tax cut of almost $35,000. The Urban Institute-Brookings Institution Tax Policy Center, a nonpartisan research group, says that someone who earned $35,000 last year and happened to be single and childless got a tax cut of $350, while a married couple with two children and income of $100,000 got over $3,400.

The White House has defended its tax cuts by saying that those who pay the most taxes should get the most in tax relief. Fair enough: Affluent Americans certainly carry the heaviest federal tax burden. Even so, these tax cuts have been wildly imbalanced, and it is only justice that taxpayers seem to recognize it.

The Tax Policy Center estimates that taxpayers with incomes over $1 million receive 9.1 percent of the nation's pretax income and pay 13.6 percent of all federal taxes -- yet will get 15.3 percent of federal tax cuts this year.

Going forward, the inequities get worse. That's because new tax provisions that help the middle class -- a bigger tax credit for children, an expansion of the bottom income tax bracket -- already have taken effect. Those that benefit the affluent -- a reduction in the inheritance tax, for example -- are still coming into place.

The Urban-Brookings tax center estimates that a middle-income household will get an additional tax cut of $5 a year by the end of this decade, when the 2001-2003 tax packages are fully phased in. Households in the top 1 percent will get $5,000 in new annual tax cuts.

But the Associated Press poll isn't just a problem for the current administration. The federal government faces massive and sustained budget deficits -- deficits that will endure even in a growing economy. Economists Alice Rivlin and Isabel Sawhill of the Brookings Institution wrote recently that the federal budget deficit is "out of control and poses substantial risks to the future."

Some future president, some future Congress will have to ask voters to make big sacrifices -- cuts in federal services or new tax increases -- to mop up the red ink, or else leave a massive public debt to their children. When that happens, on some future April 15, taxpayers are going to wonder where all the money went.