- March 6 - One-third to one-half
of the children in many states live in families that would not
receive any tax reduction from the President's tax proposal,
according to a new analysis from the Center on Budget and Policy
Priorities, a Washington, D.C. policy institute. In 12 states
plus the District of Columbia, at least 40 percent of children
live in such families.
The analysis uses Census Bureau data to estimate, on a
state-by-state basis, the number of families and children under
age 18 who would receive no tax relief from the Bush plan
because these families' incomes are too low for them to owe
federal income taxes. The large majority of these families,
however, work and pay payroll taxes and other taxes unaffected
by the Bush proposal. The Bush plan reduces only income taxes
and taxes on large estates.
Nationwide, an estimated 12.2 million low- and
moderate-income families with children -- 31.5 percent of all
families with children -- would not receive any tax reduction
from the Bush proposal. This finding is consistent with
independent analyses conducted by researchers at the Brookings
Institution, the Urban Institute, and the Institute on Taxation
and Economic Policy. The vast majority of the excluded families
"Substantial numbers of children in every state would be left
out of the President's tax plan," said Nick Johnson, who
co-authored the report with Allen Dupree and Isaac Shapiro.
"Furthermore, some states would have especially high numbers of
unaffected children." These states include California (3.7
million children unaffected), Texas (2.3 million), New York (1.9
million), and Florida (1.2 million). In each of another eight
states -- Arizona, Georgia, Illinois, Michigan, North Carolina,
Ohio, Pennsylvania, and Tennessee -- families with at least half
a million children would gain nothing from the Bush tax plan.
Among the states where the highest percentages of families
and children would not benefit from the plan are Arizona,
Arkansas, California, Georgia, Louisiana, Mississippi, Montana,
New Mexico, North Dakota, Texas, and West Virginia, plus the
District of Columbia. In each of those states, an estimated 40
percent to 52 percent of children live in the excluded families.
Even the part of the Bush tax plan that would double the
child tax credit would leave out these families, while providing
the largest tax reductions to families with incomes between
$110,000 and $250,000. The Bush proposal extends the credit to
many families with high incomes who currently receive no credit
at all -- for example, by raising the maximum income a married
couple with two children can earn and still receive the credit
from $130,000 to $300,000. Yet the proposal does not extend the
credit to any additional low- or moderate-income working
Why Benefit Families Who Don't Owe Federal Income Taxes?
Some argue that families who do not owe federal income taxes
should not benefit from the tax plan. This argument has several
flaws, according to the Center's report:
-- A significant number of these families owe federal taxes
other than federal income taxes, often in significant amounts.
In fact, data from the Congressional Budget Office show that in
1999, three- fourths of all U.S. families paid more in federal
payroll taxes than in federal income taxes.
-- Low- and moderate-income families in every state pay state
and local taxes, typically including sales taxes, excise taxes
on such items as gasoline, and property taxes (which landlords
pass on to tenants as higher rents). Though some states have
taken steps to reduce the tax burden on low- income families,
their ability to do so is limited: states that have levied such
taxes for many years cannot simply eliminate them without
dramatic effects on state budgets.
-- A boost in after-tax income would further the objective of
helping working families lift themselves out of poverty. This
objective is a key theme of welfare reform.
-- The Bush approach fails to reduce the high marginal tax
rates that many low-income families face.
For example, families with incomes between about $13,000 and
$20,000 lose more than 50 cents in increased taxes and foregone
benefits for every additional dollar they earn, but the Bush
plan would not reduce these rates. Nor would the plan provide
any marriage penalty tax relief to low- income working families,
although they can face some of the highest marriage tax
penalties of any families.
An alternative to the President's tax proposal -- one that
scaled back (but did not eliminate) the benefits to those at
very high income levels and provided tax reductions to low- and
moderate-income families with children as well -- could be
fashioned for a much smaller cost than the Bush plan. Such an
approach would ensure that the rewards from the surplus are more
broadly distributed throughout the population and also leave
resources for other critical needs that would remain largely
unaddressed under the Bush budget.
The full text of this analysis, In Many States, One-Third to
One-Half of Families Would Not Benefit from Bush Tax Plan, is
available at the Center's website, http://www.cbpp.org.
sheets also have been prepared for each state.
Attached is a list of state groups with expertise in the
impact of tax policies on low- and moderate- income families.
These groups are available for comment on the Center's report.
The Center on Budget and Policy Priorities is a nonprofit,
nonpartisan research organization and policy institute that
conducts research and analysis on a range of government policies
and programs. It is supported primarily by foundation grants.