July 9, 1997

Tax Relief for Every Taxpayer at Every Stage of Life

Before the month is over, Congress will lay on the President’s desk a significant tax reduction bill that will provide much needed relief for every taxpayer at every stage of life. As House and Senate members begin the conference process of the Taxpayer Relief Act of 1997 this week, Senators may wish to share the following talking points with their constituents.

• This bill provides $78 billion in net tax relief over 5 years and $243.4 billion over 10 years to America’s taxpayers. That restores merely a third of the taxes taken by Clinton in his 1993 tax-hike package — the largest in history.
• It is included in the balanced budget agreement and paid for by the fiscal dividend. The fiscal dividend is $350 billion over ten years.
• It’s been 16 years since America has seen a major tax cut.

• According to the Joint Committee on Taxation (JCT), 55 million people will receive benefits from this bill next year:

F 43.1 million taxpayers with children get relief;

F 4.8 million more benefit from the tuition tax credit;

F 7.2 million students benefit from the student loan interest deduction; and

F 200,000 small businessmen and women receive capital gains relief.

• A married couple with $30,000 in income and two children will see their tax burden cut by more than half, according to the Joint Economic Committee (JEC). The tax relief for other families [see attached charts] amounts to:

F A family with two children making $40,000 will see a 30-percent reduction in taxes; $50,000 income sees a 21-percent reduction; $60,000, a 15-percent reduction; $70,000, an 11- percent reduction; and $75,000, a 9-percent reduction.

• For a single parent of two with income of $30,000, the tax relief (according to JEC) amounts to 42 percent.

F For other single-parent families, the tax relief is: 26-percent reduction for $40,000; 17-percent for $50,000; 12-percent for $60,000; 9-percent for $70,000; and 8-percent for $75,000 [see attached charts].

• Under the Senate-passed bill:

F Three-quarters of the benefit goes to those making $75,000 or less — hardworking middle-class taxpayers;

F Eight-tenths of the tax relief goes to families and their educational needs; and

F Nine-tenths of the tax relief goes to those making $100,000 or less.

Let there be no doubt that this bill mostly benefits the middle class. Taxpayers need to understand that Treasury has manipulated the numbers to try to make taxpayers look richer than they are so opponents can make the claim that most of the benefits go to the richest taxpayers. How? The difference in part is due to what figures are used to make up "income."

• Most Americans consider their "income" to be their AGI — their adjusted gross income — that they use to calculate their income taxes. But, the Treasury numerologists want to manipulate the numbers to inflate taxpayers’ wealth.
• The Treasury numbers are "fixed": the President’s number crunchers use a discredited accounting scheme, called "Family Economic Income" (FEI). It’s pure gimmickry, but it serves their purposes by artificially inflating Americans’ income and making everyone look more affluent than they are [for details, see RPC’s "Tax Facts: President’s Phony Numbers Make Everyone Well Off," 6/20/97].

F As just one example of the gimmicks in this recipe, FEI counts as income "imputed rent on owner-occupied housing" — that means, even though you live in your house and don’t rent it, you have to count as income the profit you could make if you were renting it!

• The comparison below of JCT and the Treasury Department’s calculation of income quintiles shows just how much the President is willing to distort reality. The Treasury numbers inflate Americans’ affluence and — because more upper-income taxpayers are homeowners, for example, than are lower-income taxpayers — do so to a greater degree in the higher income categories (note that the top 1 percent of income earners show a 75-percent disparity).

F For example, looking at the chart, you can see that Americans whose incomes are really about $39,000 would be inflated 39 percent by Treasury to $54,000; and an income of $64,000 would be inflated 46 percent by Treasury to become a whopping $93,000.

F No wonder they say so many Americans don’t need a tax break — by their estimation, most of us are well off. [See, also, attached charts: "How Treasury Inflates America’s Income."]

• Fifty years ago Americans paid 2 cents of every dollar they earned to Washington. Today they are sending 25 cents of every dollar earned to Washington. And, that’s not their total tax burden — that’s just the federal portion.
• If we do not act today, our children will send 40 cents of every dollar earned to Washington in 2030.
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• Americans pay more in total taxes than they do for food, clothing, and housing combined.
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• Since Reagan’s 1981 tax cut, Washington has raised taxes three times (1982, 1990, and 1993) by a total of $600 billion but only cut them once (by $51 billion in 1986).

• Instead of cutting them like he promised, Clinton raised taxes $240 billion in 1993 — the largest tax hike in U.S. history.
• Instead of cutting them like he promised, Clinton tried to raise them again in 1994 — $115 billion over five years ($289 billion/9 years) when he attempted to take over the nation’s health care system.
• Instead of cutting them like he promised, Clinton vetoed a tax cut in 1995.
• Now after agreeing to the balanced budget plan, will he renege once again, choosing more Washington spending over cutting America’s taxes?

The Clinton Alternative Falls Short and Breaks Budget Agreement

• President Clinton got around to announcing his own alternative tax plan last week — after both Houses had passed their own bills — and it looks suspiciously like the Daschle plan, which was overwhelmingly rejected by a bipartisan vote in the Senate last month (seven Democrats — most of them on the tax writing committee — voted against their minority leader).
• According to JCT, Clinton’s latest proposal delivers just a $70.6 billion tax cut over five years and just $210.6 billion over ten years — the budget agreement called for $85 billion and $250 billion respectively. That’s a deal-breaker, and one America cannot afford.
• What’s not bad about his plan is plagiarized — a lot of it he copied from Congress. His tax plan contains almost every element in the plans already passed by both houses of Congress. He even included similar provisions for IRAs, even though he’s complained about the cost to the Treasury.
• But, in its details and its delay, it is a step backward on tax relief that Americans have been waiting five years for Clinton to deliver.

F Congress’ bill more than meets the agreement’s education figure, providing $32.5 billion in education relief. It also provides that up to 25 percent of the $500-per-child credit go into higher education savings accounts (for children aged 13-16).

F While tax cuts for families and education account for more than 80 percent of Congress’ bill, Clinton’s proposal would cut the tax relief to families by $14 billion over five years.

F Clinton’s plan would give just one-third ($2.3 billion) of the estate tax relief that is contained in the Senate-passed plan ($6.2 billion). That means more family farms and businesses go to pay taxes to Washington than would go to the children who helped build them.

F Clinton’s 30-percent exclusion for capital gains gives less relief for low-income workers than the bipartisan Senate plan.

F Then, there’s his urban development initiative, which was never part of the budget agreement: a tax-cut bill is not the place to be addressing this issue.

• On June 26 the Senate soundly defeated, 61-38, an alternative tax-cut plan offered by the Senate Minority Leader. That lopsided loss underscores that the bill was offered for politics’ sake, not for taxpayers’. It would have punished the very taxpayers — families with children, college students, seniors, small business owners, farmers and ranchers — the party claims they want to help. Yet, Clinton now resurrects much of this forsaken plan. [For details, see RPC’s "Daschle Alternative Hurts the Ones He Claims to Help," 6/25/97.]