Revised
January 9, 2003
http://www.cbpp.org/1-9-03tax.htm
Administration’s
Use of “Average” Tax Cut Figures Creates Misleading Impression
About the Tax Cuts Most Households
Would Receive
By Isaac
Shapiro and Joel
Friedman
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The Administration has sought to portray
its “growth package” as providing substantial benefits to a broad spectrum
of the population. To do so, it has repeatedly asserted that “92
million taxpayers would receive, on average, a tax cut of $1,083 in 2003.”
This information is misleading. Most taxpayers would receive far
less than this average amount. According to data from the Urban Institute-Brookings
Institution Tax Policy Center, nearly 80 percent of tax filers would
receive a tax cut of less than $1,083 in 2003.
How can this be? The average
tax cut is much larger than the tax cut a typical household would receive
largely because, in generating these figures, the Administration has averaged
the big tax cuts that those at the top of the income spectrum would receive
with the far more modest tax cuts those in the middle of the income spectrum
would get (and the small or non-existent tax cuts that would go to working
families with low incomes). Take, for example, a hypothetical situation
where one taxpayer gets a $10,500 tax cut and 9 taxpayers receive a $500
tax cut. Among these 10 taxpayers, the average tax cut amounts to
$1,500. Yet 9 of the 10 taxpayers are receiving a tax cut only one-third
that size.
The Urban-Brookings Tax Policy Center
data indicate the following about the tax cuts the Administration’s plan
would provide in 2003:
-
The average tax cut for tax filers in
the middle fifth of the population — those filers right in the middle of
the income spectrum — would be $265, only one-fourth the $1,083 figure
the Administration is citing for the average taxpayer.
-
Almost half of all tax filers — 49 percent
— would receive tax cuts of less than $100.
-
The average tax cut for the bottom 80
percent of tax filers would be $239. Even the next-to-top fifth of
tax filers would get an average tax cut of only $611.
-
By contrast, the top one percent of tax
filers would receive an average tax cut of $24,400. Those with incomes
of more than $1 million would get tax cuts averaging a whopping $88,900.
-
Overall, between 79 percent and 80
percent of tax filers would get less than the average tax cut of $1,083
the Administration is touting.
The Administration also is promoting other
highly stylized “facts” about how much in tax cuts would go to specific
groups. These figures are similarly distorted. For example,
the White House claims “13 million elderly taxpayers would receive an average
tax cut of $1,384.” The Tax Policy Center data indicate that only
3.4 million elderly tax filers actually would get tax cuts of this size
or greater. Some 77 percent of elderly tax filers — nearly four of
every five — would get less than the amount the White House is advertising.
Similarly, the Administration says
the average tax cut among six million single women with children would
be $541. Yet 85 percent of such women would receive tax cuts of less
than $500, and 49 percent would receive nothing. The average is $541
because a small number of such women would receive massive tax cuts, thereby
raising the average.
End Notes:
“Taking Action to Strengthen America’s Economy,” White House website.
www.taxpolicycenter.org,
Table 6 on the Administration’s stimulus proposal. Other data used
in this analysis come from the Tax Policy Center’s Tables 1 and 2 on the
Administration’s stimulus proposal.
9 times $500 is $4,500. $4,500 plus $10,500 is $15,000. $15,000
divided by 10 is $1,500.
See William G. Gale, “The President’s Tax Proposal: First Impressions,”
Brookings Institution, forthcoming.
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