Tax Cuts

Clinton and Congress Feed the Wealthy

By John Miller

This article is from the November/December 1997 issue of Dollars and Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org/archives/1997/1197miller.html

This article is from the November/December 1997 issue of Dollars & Sense magazine.

issue 214 cover

The Balanced Budget Agreement of 1997 promised tax relief to all U.S. citizens, rich and poor. "Don't believe the lies that this is a tax cut for the rich," assured Republican Congressman Dave Weldon of Florida. "This is a tax cut for the middle class." Despite Weldon's claim, it is a huge gift to the wealthy. The middle 20% of families do get a small tax break of $153 a year, while the top 20% get more than $1,000 each, and the richest 1% will be paying $16,157 less per year, according to the figures compiled by Citizens for Tax Justice. The bottom 40% of families get nothing. Taxes actually rise for the bottom 20%, due to higher excise taxes on cigarettes and other items. The middle fifth will get just 6.1% of the benefits, and nearly one-half of the gains of lower taxes go to the richest 5%.

How did a tax package that includes an across-the-board cut in taxes for parents with children end up with so many of its benefits going to so few?

The child tax credit offers parents (with income less than $110,000 per year) a $500 tax credit for each of their children that can be used to reduce the taxes the family owes to the federal government. But the credit can be used only to offset income taxes, not payroll taxes (Social Security and Medicare), which are the main taxes most low-income families pay. So only 2.4% of children in the the poorest one-fifth of families will qualify for a credit.

The education tax credit provides families (with incomes up to $100,000) an income tax reduction for up to $1,500 of their children's college expenses during their first two years of college and $1,000 for later years. But since low-income families have fewer children attending college their benefits will be small; and middle-income households get far less than the wealthiest 20% (who will enjoy close to one-half of the total benefits from this provision).

The benefits of other provisions of the tax package are even more lopsided. The cuts in corporate, capital gains, and estate taxes provide about one-half of the total tax relief and benefit nearly exclusively the super-rich. Next year the top tax bracket on long term capital gains (from assets such as stocks, bonds, and real estate) will be 20%, down from 28%. The minimum corporate tax was eliminated, and the estate tax exemption was nearly doubled. The richest 5% of families will get 83% of the benefits from these three cuts.

Such inequitable tax relief is also unlikely to do much for the economy. Even Business Week allowed that "the reduction in the capital-gains tax rate is of doubtful economic value at this bullish moment." Few traditional economists can muster even that much enthusiasm for the argument that lower estate taxes and more corporate tax loopholes will stimulate economic growth. In the end, the 1997 tax bill is "a disaster for the goal of fair, simple, and adequate taxation," says Robert McIntyre, director of Citizens for Tax Justice.

John Miller teaches economics at Wheaton College and is a member of the Dollars & Sense collective.

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