Final Version of Bush Tax Plan Keeps High-End Tax Cuts, Adds to Long-Term Cost

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The tax plan approved by Congress on May 26, 2001 preserves the high-income tax cuts proposed by George W. Bush, but adds enough new tax breaks to make the final bill 20 percent more costly that the original Bush plan.

A distributional analysis released by Citizens for Tax Justice shows that when the tax plan is fully phased in:

• The typical tax cut for the median income taxpayer will be $600 a year.
• For the 78 million taxpayers in the lowest 60 percent of the income scale, the tax cut will average $347 a year.
• In contrast, at the top of the income scale the average tax cut will be $53,000 annually--virtually identical to the $54,000 annual tax cut proposed by the President.

"Congress has given the President what he truly cared about--gigantic tax cuts for the rich," said Robert S. McIntyre, director of Citizens for Tax Justice. "But Congress reneged on its promise to honor fiscal responsibility. Instead of a tax cut one-quarter less in size than the President's plan, Congress actually increased the fully-phased-in cost of the tax cuts by a fifth."

"As a result, over the upcoming years, average taxpayers will pay dearly for this tax cut plan in reduced public services, a return to budget deficits or, most likely, both."

To hide the true cost of the tax plan, Congress relied on slow phase-ins, artificial phase-outs and a redefinition of the ten-year budget period to include only nine years. "This is reminiscent of Bush's campaign strategy of insisting that there are only nine years in a decade," noted McIntyre. "Only if Bush's education plan is a total failure are he and Congress likely to get away with this snake-oil approach to budget policy."

Two tables and a graph showing the distributional effects of the tax plan and its predecessors follow. The analysis was performed using the Institute on Taxation and Economic Policy Tax Model.