Opinion pieces and speeches by EPI staff and associates.
Tax Cuts Like O’Hare
The new tax cut passed by Congress is like flying into O’Hare. You may not get there as soon as you’d hoped.
By now, everybody has heard the joke about the estate tax. Since the legislation does not repeal the tax until January 1, 2010, the rich and infirm will be challenged to hang on for another nine years (this must be part of President Bush’s health care plan).
The kicker is that all the changes in the tax bill sunset on December 31, 2010, so that at midnight, the “death tax” becomes law again. Supposing Gramps is fortunate enough to survive until 2010, he’ll then face the grim necessity of arranging to leave this vale of tears by New Year’s, lest his estate be exposed to the taxman.
We could go on, and we will.
Remember the hue and cry about marriage penalties? The new tax law will eliminate marriage penalties for couples in the 15 percent bracket (those whose gross income is approximately $68,000 or less). But the penalties are not completely eliminated until 2009. So the desire for remuneration will be tested against the seven-year itch.
Then there’s aid to higher education. Is Junior going to college next year, or is he there now? Sorry, the deduction for tuition is not fully effective until 2004. Of course, he could always live at home for a few years.
Planning to increase your retirement saving? The limits for IRA’s and 401(k)’s go up, but slowly over five years. If you’re within shouting distance of retirement, there isn’t much there for you.
Finally, there’s my favorite part of the tax bill. The child tax credit is doubled to $1,000 and made more helpful for some low-income families. Only problem: if your children are nine years of age or older, you will never see that $1,000. It isn’t phased in until 2010, and the age limit for the credit is 17.
The reason for all these delays is that the tax package is simply unaffordable, and the Congress knows it. The price tag greatly exceeds the $1.35 trillion that the Senate thought should be the limit, not to mention the $1.6 trillion that President Bush insisted was “just right.”
Congress outspent its own targets because it was dedicated to providing huge benefits for high-income persons, in the form of reduced rates, increased deductions, increased IRA limits, and estate tax repeal. Otherwise, it could have provided marriage penalty relief and the $1,000 child credit immediately, not years from now.
Congress also passed on any effort to simplify the tax code. In particular, they rejected the counsel of Mayor Daley and the Illinois Tax Accountability Project to simplify and expand tax benefits for families with children, in the form of a Simplified Family Credit, sort of like a universal Earned Income Tax Credit.
Citizens for Tax Justice reports that the average tax cut for the rich in this bill is $53,000 a year. For the bottom 60 percent of the population, the average cut is $347. So if you’re married, enjoy that $600 rebate check the government will mail you this fall. For most of us, it’s larger than any tax cut we’ll ever see.
Max Sawicky is an economist at the Economic Policy Institute.
[ POSTED TO VIEWPOINTS ON JULY 30, 2001 ]
Copyright © 2001 by The Economic Policy Institute. All rights reserved.
Preferred Citation: Economic Policy Institute, “Viewpoints.” Washington, D.C.: Economic Policy Institute, 2001 [http://epinet.org/webfeatures.html].
Readers may redistribute this material to other individuals for noncommercial use, provided that the text, data, and all HTML codes remain intact and unaltered in any way. This article may not be resold, reprinted, or redistributed for compensation of any kind without prior written permission. If you have any questions about permissions, please contact EPI at email@example.com.
See related work on Income and wages | Wages, Incomes, and Wealth