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T A X A T I O N

  WASHINGTON, D.C. - In recent years, the U.S. macroeconomy has staged a remarkable recovery from earlier sluggishness, due in part to numerous headwinds or macroeconomic supply-side shocks affecting the economy. Recent GDP growth, for example, has been persistent and robust, trending well above 3 percent.

Download Research Report #109-35 in PDF format

 

  WASHINGTON, D.C. - A primary objection to reducing or eliminating the federal estate tax is the projected revenue loss.  Although the $28 billion that the estate tax is expected to raise in 2006 is hardly insignificant, it represents just 1.2 percent of total receipts.  However, the actual revenue yield of the estate tax is considerably lower.  There is abundant evidence that the high compliance costs and reduced capital accumulation associated with the tax result in at least partially offsetting revenue losses to the income tax.

Download Research Report # 109-38 in PDF format

 

   WASHINGTON, D.C. - Debate over changes in the tax code often focuses on who benefits most from such changes. Most of this debate hinges on tax distribution tables that measure the impact of tax law changes on the tax liabilities of various income groups. However, many newspaper articles and think tank reports fail to consider the current progressivity of the existing tax code when discussing the benefits of tax cuts for various income groups.

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   WASHINGTON, D.C. - The Federal estate tax undermines economic growth, fails to reduce inequality, and harms many small businesses, according to a new study released today by Joint Economic Committee (JEC) Chairman Jim Saxton and fellow Committee members Congressman Phil English and Congressman Kevin Brady. The study, Costs and Consequences of the Federal Estate Tax, offers a wide-ranging examination of the central issues regarding the estate tax and its potential reform.

Download Press Release #109-72 in PDF format

 

  WASHINGTON, D.C. - A regular feature of the debate over changes in the tax code is who benefits and who doesn’t.  Most of this debate hinges on federal government statistical tables, which employ distributional analysis to measure the effects of changes in the tax code.

Download Research Report 109-20 in PDF format

 

   WASHINGTON, D.C. - The existing U.S. corporate tax laws have grown into a patchwork of overly complex, inefficient and unfair provisions that impose large costs on corporate business. U.S. corporations seeking to minimize the costs imposed by the counterproductive provisions in the U.S. corporate tax system have adopted strategies to reduce overall tax exposure and increase profits. Such strategies include moving operations overseas, corporate inversions, transfer pricing, earnings stripping, and complex leasing arrangements, all to minimize taxation.

Download Research Report #109-8 in PDF

 

   WASHINGTON, D.C. - The U.S. corporate income tax is overly complex and counterproductive, according to a new Joint Economic Committee (JEC) study released today by Chairman Jim Saxton. The new study, Reforming the U.S. Corporate Tax System to Increase Tax Competitiveness, identifies several different ways the tax could be improved. These options include territorial taxation, individual and corporate income tax integration, movement toward consumption taxation, and elimination of the corporate alternative minimum tax or the corporate income tax altogether.

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   WASHINGTON, D.C. - The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) was designed to encourage balanced economic growth. In addition to stimulating consumer spending and short-term economic growth, the JGTRRA was intended to promote investment, capital formation and long-term growth. The efficacy of the JGTRRA has been the subject of debate in recent policy disputes and in academic and popular publications. Many of the criticisms have questioned the adequacy of the economic stimulus to increase consumer spending. The key issue, however, is whether the JGTRRA stimulated investment.

Download Research Report #109-6 in PDF

 

   WASHINGTON, D.C. - Economic theory gives policymakers solid support for resisting tax increases and preferring spending reductions as a method of reducing the federal deficit.

Download Research Report #109-5 in PDF

 

   WASHINGTON, D.C. - A regular feature of the debate over changes in the tax code is who benefits and who doesn't. Most of this debate hinges on federal government statistical tables, which employ distributional analysis to measure the effects of changes in the tax code.

 

   WASHINGTON, D.C. - The tax relief enacted since 2001 has pushed after-tax median income for married-couple families with two children to historic highs, according to a new Joint Economic Committee study released today by Vice Chairman Jim Saxton. The new study, Family Income and Income Taxes During the Economic Recovery, examines the impact of the 10 percent tax bracket, expanded child credit, and marriage penalty relief on the after-tax income of such families between 2001 and 2003.

Download Press Release #108-55 in PDF

 

   WASHINGTON, D.C. - The federal tax cuts of the last few years have put the United States near or at the top among advanced large economies in offering incentives to work, save, and invest, according to a new Joint Economic Committee (JEC) study released by Vice Chairman Jim Saxton.

   The new study, How Competitive Is the U.S. Tax System?, compares major tax rates in 2003 in the United States versus those in the world's eight other largest advanced economies: Australia, Canada, France, Germany, Italy, Japan, Spain, and the United Kingdom.

Download Press Release #108-117 in PDF

 

      WASHINGTON, D.C. - Taxes, not fees and expenses, remain the biggest cost to mutual fund shareholders, according to a new study released today by Vice Chairman Jim Saxton. A most serious tax impact comes from how income taxes on capital gain distributions significantly reduce investment returns, according to the new JEC study, Providing Tax Equity for Mutual Fund Investors: Changing the Tax Treatment of Capital Gain Distributions. This tax liability occurs when mutual funds realize capital gains that then must be passed on to mutual fund shareholders, even if the investors sold none of their mutual fund shares.

Download Press Release #108-115 in PDF

 

      WASHINGTON, D.C. - The tax relief legislation passed in recent years has provided thousands of dollars in tax savings to typical families and should not be tampered with, Vice Chairman Jim Saxton said today in releasing a new study on the topic. The study, Income Tax Savings for Middle-Income Families, focuses on the impact of recent tax changes on four person, married couple families.

Download Press Release #108-93 in PDF

 

      WASHINGTON, D.C. - Tax distribution tables are often incomplete, biased and misleading and thus should not drive U.S. tax policy, according to a new Joint Economic Committee study released today by Vice Chairman Jim Saxton. The new study, A Comparison of Tax Distribution Tables: How Missing or Incomplete Information Distorts Perspectives, is the latest product of a JEC research program on tax distribution issues. Tax distribution tables are typically used to project and allot changes in taxation to specific income groups, but often omit basic information such as the share of taxes paid by such groups before and after a given tax measure takes effect.

Download Press Release #108-88 in PDF

 

      WASHINGTON, D.C. - The top half of taxpayers continue to pay over 96 percent of Federal income taxes, while the bottom half accounts for slightly less than 4 percent, according to new 2001 Internal Revenue Service (IRS) data released today by Vice Chairman Jim Saxton. The impact of the stock market collapse that began in 2000, and the economic slowdown and recession that followed, are clearly visible in the data, especially for the income and tax shares of upper income taxpayers.

Download Press Release # 108-63 in PDF

 
The Misleading Effects of Averages in Tax Distribution Analysis (JEC Study -- September 2003)

      WASHINGTON, D.C. - Comparisons of the effects of tax legislation on taxpayers in various income groups often misrepresent the impact of the tax system on most taxpayers, according to a Joint Economic Committee (JEC) study released today by Vice Chairman Jim Saxton. According to the study, The Misleading Effects of Averages in Tax Distribution Analysis, such comparisons are often misleading because the average tax liabilities commonly used are very different from the income tax liabilities actually borne by most taxpayers in each income group. The study is a statistical analysis of Internal Revenue Service income tax data from its Statistics of Income division.

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      WASHINGTON, D.C. - The positive effects of repealing the estate tax should be made permanent, Vice Chairman Jim Saxton said today in releasing a new study on this tax with Rep. Jennifer Dunn. The study, The Economics of the Estate Tax: An Update, documents the damage inflicted by the estate tax on capital formation, thrift, continuity of small businesses, and the environment. Under current law, the damaging effects of the estate tax are reduced, and the tax would be repealed in 2010, only to come back to 2001 levels in the next year.

Download Press Release # 108-42

 

      WASHINGTON, D.C. - The new tax legislation recently reported by the House Ways and Means Committee would improve economic growth by addressing a major soft spot in the economic expansion - investment - according to a study released today by Joint Economic Committee (JEC) Vice Chairman Jim Saxton. The study, Near-Term Stimulus and Long-Term Economic Growth, analyzes the economic impact of the Jobs and Growth Tax Reconciliation Act of 2003.

Download Press Release #108-23 in PDF

 

      WASHINGTON, D.C. - The federal budget deficit is a manageable problem and should not preclude pro-growth tax relief, Joint Economic Committee (JEC) Vice Chairman Jim Saxton said today. He made his remarks in connection with the release of a new JEC study, "Deficits, Taxation, and Spending."

Download Press Release #108-15 in PDF

 

      WASHINGTON, D.C. - The tax relief plan proposed by President Bush would reduce the excessive burden of taxation on the U.S. economy, according to a new JEC study released by Vice Chairman Jim Saxton today. The study examines the extra costs imposed by current levels of taxation, which average about 40 cents on the incremental dollar collected in federal revenue. The study, Federal Tax Policy, Near-Term Stimulus, and Long-Term Growth, analyzes the main components of the Administration plan.

Download Press Release #108-11 in PDF

 

      WASHINGTON, D.C. - New Internal Revenue Service (IRS) data show that the top one percent of tax filers paid 37.42 percent of federal personal income taxes in 2000, the latest year for which data are available, Chairman Jim Saxton said today. The 2000 share paid by the top one percent (ranked by adjusted gross income) reflects an increase from the 36.18 percent level posted in 1999. The 3.91 percent share paid by the bottom half of taxpayers was virtually unchanged during this period, as was the 96.09 percent share borne by the top half. The new data provide the necessary context in which to evaluate claims about the supposed distributional impact of various tax policy proposals.

Percentiles Ranked by AGI Adjusted Gross Income Threshold on Percentiles Percentage of Federal Personal Income Tax Paid

Top 1%

$313,469

37.42

Top 5 %

$128,336

56.47

Top 10%

$92,144

67.33

Top 25%

$55,225

84.01

Top 50%

$27,682

96.09

Bottom 50%

<$27,682

3.91

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      WASHINGTON, D.C. - For many senior citizens, individual retirement plans, such as IRAs and 401(k)s, are a primary saving vehicle for retirement. Along with Social Security, individual retirement plans (“IRPs”) represent a major source of money for retirement. However, even though IRPs are a valuable saving vehicle for many seniors, many IRPs have one major drawback: the forced distribution of assets and the associated taxation of those assets for senior citizens at age 70½ for traditional IRAs and the later of age 70½ or the year in which the account holder retires for 401(k)s. This requirement forces many seniors to take distributions when they do not need them Worse, in cases of a down market, the forced distributions may require seniors to sell assets at depressed prices to pay taxes, even if investment losses have been incurred.

    This study addresses the minimum distribution requirement that effectively forces senior citizens to withdraw funds from IRPs or face a 50 percent excise tax, the reasoning behind the requirement, and the economic harm it can have on seniors, and some policy alternatives to this requirement that would help mitigate the bias against seniors and their retirement that this requirement creates.

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      WASHINGTON, D.C. - Investment is widely recognized as a key to long-term economic growth. Marginal individual income tax rate reductions clearly stimulate aggregate consumption and labor force participation, but their stimulative effects on aggregate investment have been disputed. Based on the empirical evidence available a decade and a half ago, marginal individual income tax reductions were thought to have slight and indirect effects on aggregate investment. Even marginal corporate income tax rate reductions were thought to boost aggregate investment only modestly. To stimulate aggregate investment, many economists recommended asset-specific tax relief such as accelerated depreciation, investment tax credits, and lower differential tax rates on the income from specific capital assets. But, empirical progress in aggregate investment modeling during the last decade and a half suggests that marginal income tax rate reductions is more effective than previously thought in stimulating aggregate investment.

    In the three decades prior to 1988, aggregate investment models assumed that all firms operated in a close approximation of a perfect financial market. Beginning in 1988, empirical studies have found that some large businesses in new, rapidly changing industries, many medium-sized businesses, and virtually all small businesses and farms are financing constrained. When financing constrained firms cannot fund their investments through their cash flow or liquid asset stocks, such firms must pay substantial external finance premia over the opportunity costs of internal funds to contract debt or issue equity. As a result, financing constraints force some businesses and farms to forgo some profitable investments.

    Incorporating financing constraints into aggregate investment models has profound implications for U.S. tax policy. Aggregate investment models that assume a perfect financial market favor asset-specific tax relief. In contrast, aggregate investment models that incorporate financing constraints favor marginal income tax rate reductions. Marginal income tax rate reductions would increase a business' or a farm's cash flow from its portfolio of existing assets and should stimulate investment. Since many financing constrained businesses and farms are proprietorships, partnerships, or Subchapter S corporations whose income and expenses flow-through to individual tax returns, marginal individual income tax rate reductions rather than asset-specific tax relief are critically important to stimulating investment among these "flow-through" businesses and farms.

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      WASHINGTON, D.C. - In the Federal budget process, the pay-as-you-go (PAYGO) principle as set forth in the Budget Enforcement Act (BEA) requires that all enacted direct spending and tax legislation for a fiscal year must be deficit-neutral in the aggregate. PAYGO rules have been generally praised by proponents for restraining new spending and for encouraging legislators to provide reasons for their budget decisions. Opponents have pointed to unconstrained federal spending, and frequent budget artifices as examples of the failure of PAYGO. In addition, the PAYGO rules raise excessive procedural hurdles for tax relief legislation. Numerous scholars and practitioners in the field have addressed the pros and cons of PAYGO, including the need for changing PAYGO rules or eliminating them altogether. The current PAYGO provisions are set to expire with the BEA after fiscal year 2002.

    This paper concludes that if the PAYGO requirements as set forth in the Budget Enforcement Act are to be extended, then at a minimum a compromise approach be adopted to reform PAYGO: to permit dynamic revenue analysis of tax legislation, or at the very least allow legislation providing appropriate tax deferrals (such as contributions to IRAs) to be exempt from PAYGO requirements. This paper discusses budget enforcement and the PAYGO concept, then identifies the problems associated with PAYGO and how PAYGO often leads to counterproductive tax policy decisions. The paper also reviews the mixed success of PAYGO in controlling federal spending. The paper then demonstrates how a reform that would allow legislation providing appropriate tax deferral to be exempt from PAYGO rules would allow both fiscal responsibility and good tax policy by promoting incentives for taxpayers to save and invest, and potentially increasing revenue to the government.

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      WASHINGTON, D.C. - The permanency of the federal tax code is an issue currently before Congress. President George W. Bush is seeking to accelerate the implementation of the individual income tax rate reductions in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and to make all of its provisions, including the rate reductions, the expansion of the child tax credit, and the repeal of the estate tax, which are currently scheduled to expire on December 31, 2010, permanent.

    According to the available evidence, individuals respond more strongly to a permanent federal tax rate reduction or other permanent tax incentives than to a temporary federal tax reduction or a federal tax rebate. Thus, the duration of a federal tax reduction affects how much it can stimulate economic growth.

    Empirical studies generally show that many individuals (between 50 percent and 80 percent) smooth their consumption over their lifetime based upon their expectations of permanent income (i.e., lifetime average income excluding any one-time income gains or losses) while liquidity constraints, myopia, and other limitations compel other individuals (between 20 percent and 50 percent) to limit their consumption to current after-tax income.

    Because only a permanent federal tax reduction can increase permanent income, a permanent federal tax reduction elicits higher near-term consumption and GDP growth than a temporary federal tax reduction or a federal tax rebate. A survey of relevant empirical studies using a variety of statistical models and data sets suggests that a permanent federal tax reduction affecting individuals will increase first-year aggregate consumption and GDP twice as much as a temporary federal tax reduction of the same amount and at least three times as much as federal tax rebate of the same amount, all other things being equal.

    Instead of finding that individuals anticipate how announced federal tax changes affect their after-tax income and alter their consumption even before such changes are implemented, empirical studies generally find that the most of the economic benefits from federal tax reductions affecting individuals when such reductions are implemented. Lengthy phase-ins and implementation delays minimize the near-term boost to consumption and GDP growth from federal tax reductions affecting individuals.

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    Over the last 30 years, the mutual fund industry has grown tremendously to its current size of almost $7 trillion in funds managed. It has been characterized by rapid innovation and strong competition. The variety of mutual fund types has grown, offering average Americans opportunities to invest money and diversify assets. Mutual fund costs have fallen, driven down by economies of scale and advances in computers and communications. Mutual fund investors have benefited from falling costs, which competition has passed along to them.

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    WASHINGTON, D.C. – New Internal Revenue Service (IRS) data obtained by the Joint Economic Committee (JEC) show that the top one percent of tax filers paid 36.18 percent of federal personal income taxes in 1999, the latest year for which data are available, Chairman Jim Saxton said today. The 1999 share paid by the top one percent (ranked by adjusted gross income) reflects an increase from the 34.75 percent level posted in 1998. The 4.00 percent share paid by the bottom half of taxpayers was virtually unchanged during this period, as was the 96.00 percent share borne by the top half. The new data provide the necessary context in which to evaluate claims about the supposed distributional impact of various tax policy proposals.

   "The data publicly released by the JEC today reflects the steeply progressive impact of the federal income tax," Saxton said. "These data must be considered before any valid distributional evaluation of various income tax proposals can be made. Unfortunately, statistics portraying tax policy changes as skewed often are released without disclosing the share of taxes actually paid by various income groups. In other words, these data on the share of taxes paid before and after a tax change would take effect are often undisclosed, leading to incomplete and often misleading results. The bottom line is that these data are needed for an informed discussion of a wide array of tax policy issues. The current tax shares paid by various income groups largely determine the distributional outcomes of most major tax legislation, not the tax rate structure of the legislation itself, " Saxton concluded.

Percentiles Ranked by AGI
Adjusted Gross Income
Threshold on Percentiles
Percentage of Federal
Personal Income Tax Paid
Top 1 %
$293,415
36.18
Top 5 %
$120,846
55.45
Top 10 %
$87,682
66.45
Top 25 %
$52,965
83.54
Top 50 %
$26,415
96.00
Bottom 50 %
< $26,415
4.00


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      WASHINGTON, D.C. - For twenty years, American households have increased their holdings of mutual funds and other financial assets despite periods of inflation, disinflation, booms, bankruptcies, commodity price shocks, and financial crises at home and abroad. During the last ten years, lower inflation, lower interest rates and demographic factors have further boosted the demand for mutual funds.

    Mutual funds are the primary financial assets of many middle-income households. More than 80 percent of mutual fund owners have annual household incomes below $100,000; their median financial assests are $80,000. Mutual fund assets make up 21 percent of all retirement assets.

    Now is the right time to re-examine the taxation of investment returns on mutual funds. This study describes who owns mutual funds, what forces underlie growth in mutual fund ownership, and what effects changes in the capital gains taxation of mutual fund distributions could have.

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       WASHINGTON, D.C. - The ongoing economic slowdown, exacerbated by the terrorist attacks of September 11, makes changes in economic policy necessary. While there is bipartisan agreement on the desirability of tax relief, the composition and scale of tax legislation are both matters of contention. This paper examines current economic conditions, the primary features of several options for tax relief under consideration in Congress, and their potential effects on the economy.

     Current and ongoing Joint Economic Committee (JEC) research on major tax issues indicates that measures to reduce income tax rates and reduce the cost of capital would have positive short- and long-term effects on the economy. This study is divided into several sections: the economic impact of taxation, the recent historical record, and certain major provisions for tax relief under consideration. Among the findings are the following:

  • The economy has been in an economic slowdown since the middle of 2000, led by a sharp decline in investment growth. The rebound previously projected by many macroeconomic forecasters for the last half of 2001 will probably be delayed or undermined by the terrorist attacks of September 11, 2001. Tax incentives for capital formation are especially appropriate given the important leading role of weakening investment in the economic slump.

  • After the attacks, the extra security costs in the short run as well as in the long run will have effects similar to imposing a “security tax” on an already vulnerable economy. This security tax should be offset by tax policy, such as the relief provided under several core components of the Economic Security and Recovery Act of 2001 (H.R. 3090).

  • The current tax code penalizes work, saving, investment, and entrepreneurship. Tax changes that reduce these penalties will improve long-term economic growth.

  • According to an important and growing body of economic research, the current level of taxation imposes a large excess burden at the margin; 40 cents in lost economic welfare per dollar of tax would be a reasonable estimate. There is no reason for policymakers to accept such counterproductive results.

  • If the tax bill increases the GDP growth rate by only one-tenth of one percentage point annually, it would produce enough additional revenue over 10 years to offset a significant portion of the estimated static revenue losses.

  • The dynamic economic impact of properly designed tax legislation, and the high degree of income mobility in the United States, lead to broadly shared economic benefits that are often ignored in conventional revenue and distributional analysis.

  •  

          WASHINGTON, D.C. - The alternative minimum tax (AMT) for individuals is a separate system of income taxation that operates in parallel to the regular income tax. Taxpayers who may be affected by the AMT must recalculate their taxes using rules about income and deductions different from those that apply to regular income tax. If they owe more under the AMT than they would under regular income tax, they pay the AMT amount. 

         Unlike the regular income tax, the AMT is not indexed for inflation. Over time, inflation and economic growth have made the AMT affect more and more taxpayers. In 1990, the AMT financially affected only about 132,000 taxpayers. In 2000, it affected an estimated 1.3 million taxpayers, and in 2010, it is projected to affect 17 million taxpayers.

         The huge increase in taxpayers who will soon be affected by the AMT has led to Congressional proposals to overhaul or eliminate it. This paper examines the main options for dealing with the AMT.

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          WASHINGTON, D.C. - In order to increase personal saving and investment and to promote tax neutrality among various investment vehicles, the tax treatment of capital gains unrealized by mutual fund shareholders should be modified. The current policy of taxing mutual fund capital gain distributions unfairly discriminates against taxpayers seeking the investment benefits of diversification through mutual funds instead of through direct ownership of stocks. Therefore, the practice of taxing forced distributions of capital gains to mutual fund shareholders should be changed to allow for a deferral of taxation on reinvested capital gain distributions. Until shareholders realize a capital gain through the sale of an asset, no tax liability should incur. Since mutual funds are a popular vehicle for saving and investment of middle-income households, this tax reform would greatly increase the incentives for these people to invest and save for their future by increasing their after-tax rate of return.

        A tax deferral on mutual fund capital gain distributions as proposed in H.R. 168, sponsored by Rep. Jim Saxton (R-NJ), could increase the after-tax return by almost 15 percent over a 30-year period for many mutual fund shareholders. For a hypothetical taxpayer with an initial $10,000 investment in a mutual fund that returns 10 percent a year, the deferral on capital gain distributions as proposed in H.R. 168 would amount to $15,055 over a 30-year period after taxes. This amounts to approximately 150 percent of the original $10,000 investment.

        A change in the tax treatment of mutual funds would have a beneficial impact on all owners of mutual funds, but the benefits would primarily help those making less than $100,000 a year -- 81% of households owning mutual funds, with 39% of households owning mutual funds earning less than $50,000 a year.

        A deferral mechanism, as proposed under H.R. 168, is relatively simple and would not result in a significant paperwork burden for mutual funds or their shareholders.

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          WASHINGTON, D.C. - With large and growing federal budget surpluses, and with the federal tax burden at a peacetime high, a broad spectrum of policymakers are supporting substantial income tax rate cuts. Tax rate cuts would not only provide tax relief to every income taxpayer, they would also spur economic growth by reducing the distortions created by income taxes. This report provides background on marginal tax rate levels, describes the economic costs created by high marginal rates, and summarizes tax rate trends in other industrial countries. The report finds:

      • The combination of statutory income tax rates, income tax phase-out provisions, state income taxes, and payroll taxes can create excessive marginal rates for families at all income levels.    
      • Over 20 million small businesses that pay tax under the personal income tax system would also benefit from rate reductions. Recent research finds a strong link between marginal tax rates and small business hiring and investment behavior.    
      • High marginal tax rates distort work and savings decisions, and promote unproductive tax avoidance and evasion activities. These tax distortions create "deadweight losses" which lower the nation's standard of living. Each $1 of marginal tax rate cuts would save the private economy at least $1.25 as deadweight losses fall and economic efficiency increases.    
      • The harmful effects of high marginal tax rates have persuaded dozens of countries to reduce rates in recent years. The average top personal income tax rate in the G-7 major economies has fallen 18 percentage points since 1980. In an increasingly competitive world, lowering our marginal rates would reduce the burden of our tax system and help sustain our economic leadership.
  •  

        WASHINGTON, D.C. – New Internal Revenue Service (IRS) data obtained by the Joint Economic Committee (JEC) show that the top one percent of tax filers paid 34.75 percent of federal personal income taxes in 1998, the latest year for which data are available, Vice Chairman Jim Saxton said today. The 1998 share paid by the top one percent (ranked by adjusted gross income) reflects an increase from the 33.17 percent level posted in 1997. The 4.21 percent share paid by the bottom half of taxpayers was virtually unchanged during this period. The new data provide the necessary context in which to evaluate claims about the supposed distributional impact of various tax policy proposals.

       "The data publicly released by the JEC today reflect the steeply progressive impact of the federal income tax," Saxton said. "These data must be considered before any valid distributional evaluation of various income tax proposals can be made. Unfortunately, statistics portraying tax policy changes as skewed often are released without disclosing the share of taxes actually paid by various income groups. In other words, data on the share of taxes paid before and after a tax change would take effect are often concealed, producing misleading results. The bottom line is that these data are needed for an informed discussion of a wide array of tax issues."

       According to a letter to Saxton from the Director of the Statistics of Income Division (SOI/IRS), these data were also recently provided to the Office of Tax Analysis of the Treasury Department.

    Percentiles Ranked by AGI
    Adjusted Gross Income
    Threshold on Percentiles
    Percentage of Federal
    Personal Income Tax Paid
    Top 1 %
    $269,496
    34.75 %
    Top 5 %
    $114,729
    53.84 %
    Top 10 %
    $83,220
    65.04 %
    Top 25 %
    $50,607
    82.69 %
    Top 50 %
    $25,491
    95.79 %
    Bottom 50 %
    < $25,491
    4.21 %


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           WASHINGTON, D.C. - To increase personal saving and investment and to promote tax neutrality among various investment vehicles, the tax treatment of capital gains unrealized by shareholders should be modified. The current practice of forcing distributions of capital gains to mutual fund shareholders should be changed. Until the shareholder realizes a capital gain through the sale of an asset, no tax liability should incur. With respect to regulated investment companies, the realization point that triggers a capital gains tax liability should be moved from the corporate level down to the individual shareholder level. Since mutual funds are a popular vehicle for saving and investment of middle-income households, this tax reform would greatly increase the incentives for these people to invest and save for their future by increasing their pre-liquidation rate of return.

         The current tax treatment of mutual funds causes the average mutual fund investor to lose between 10 percent and 20 percent a year of their pre-liquidation rate of return. On a $10,000 investment earning a 10 percent annual rate of return, a 2.3 percentage point reduction in the pre-liquidation rate of return would cost a mutual fund investor almost $82,000 over a 30 year period -- on a $26,000 investment a mutual fund investor would forego approximately $213,000 over a 30 year period.

         A change in the tax treatment of mutual funds would have a beneficial impact on all owners of mutual funds, but the benefits would primarily help those making less than $100,000 a year, with 43% of households owning mutual funds earning less than $50,000 a year.

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           WASHINGTON, D.C. - Abstract The analysis of tax data is a time intensive and complicated process. Much time and effort are spent collecting income and tax data, compiling data sets and running statistical analyses. However, it appears that relatively little time and effort are spent actually understanding the data and how best to present results to the public of analyses of using tax data. This is evident in the overuse of averages and the simplistic classification of taxpayers into income ranges and quintiles by tax distribution tables that are often highly publicized. This study shows that the link between income and tax liability is much more tenuous that that often presumed and that a variety of other factors can greatly affect tax liability. Specifically, this report finds that, among other things:

      • Over 22 percent of all 1995 tax returns claimed zero tax liability – For calendar year 2000, the JCT estimates that 48.7 million out of 140.2 million taxpayers overall will have zero or negative federal income tax liability.
      • In four out of the five income groups examined, a majority of taxpayers had tax liabilities that were either 25 percent greater than the average or 25 percent less than the average tax liability for each income group.
      • In comparing federal income tax liabilities, distribution tables often misclassify and group millions of taxpayers into quintiles in which they have little tax liability in common.
        • Approximately 2.2 million taxpayers in the third quintile pay more in federal income taxes than 5.4 million taxpayers classified in the fourth quintile.
        • Over 3 million taxpayers in the fourth quintile pay more in federal income taxes than 4.1 million taxpayers classified in the fifth quintile.

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    WASHINGTON, D.C. - This analysis examines recent trends in stock ownership and explains the reasons for the dramatic increase in stock ownership among a broader and increasingly diverse number of Americans. The key reasons for this democratization of the stock market include:

    • The popularization of the mutual fund.
    • The general reduction in the multiple taxation of savings and investment that resulted from the genesis of the IRA and 401(k) plan.
    • The emphasis of the Federal Reserve on price stability which has lowered interest rates, stabilized financial markets, and acted as a de facto tax cut.

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    WASHINGTON, D.C. - The analysis of tax policy and tax legislation can be "highly conjectural" and consequently more art than science. Tables and figures detailing revenue effects and distribution of burdens associated with projected outcomes of proposed tax legislation are often presented in ways that distort or fail to disclose information regarding the economic outcomes. Additionally, some of these tables are based on data sources that are statistically compromised and for which statistical measures of accuracy are impossible to calculate. Furthermore, the public is often not informed as to the limitations inherent in the information. Members of Congress, students of tax analysis, the media and ordinary citizens seeking to understand the economic effects of proposed tax legislation are inundated with revenue estimates and distributional tables that often obscure the economic issues and hinder the policy process.

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           WASHINGTON, D.C. - This study examines a feature of the budget process called the tax expenditure budget. The tax expenditure concept relies heavily on a normative notion that shielding certain taxpayer income from taxation deprives government of its rightful revenues. This view is inconsistent with the proposition that income belongs to the taxpayers and that tax liability is determined through the democratic process, not through arbitrary, bureaucratic assumptions. Furthermore, the methodology of the tax expenditure budget is problematic as its expansive tax base treats the multiple taxation of saving as the norm. By using an expansive view of income as the underlying assumption of the tax expenditure concept, this viewpoint institutionalizes a particular bias into the decision-making process.

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          WASHINGTON, D.C. - The current tax system is counterproductive and biased against saving and investment. The tax system imposes large losses on the economy that reduce the economic welfare of households and businesses. The current level of taxation imposes additional costs of about 40 cents at the margin for each dollar collected in revenue. A reduction in the burden imposed by the tax system would make a significant improvement in the economic well-being of American households. Furthermore, if this surplus revenue is not returned to the taxpayers, it appears likely that most of it will be absorbed in federal spending increases.

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            WASHINGTON, D.C. - As discussion continues over the federal government's budget for fiscal year 2000, a large number of political leaders are calling for some form of tax relief. Three factors are contributing to this push for tax reduction: first, the federal budget is in surplus for the first time in decades. It is financially possible to have tax reduction without incurring the political problems associated with budget deficits and/or forced reductions in federal expenditure. Second, federal tax revenues are at a historic high in relation to the nation's output, and many taxpayers feel the federal government is imposing an increasingly unreasonable burden on them, thereby increasing the political appeal of a tax cut. Some areas of taxation - e.g., the taxation of savings and capital - are particularly high and burdensome. Third, some advocates of tax reduction feel that if federal revenues are not soon reduced, that political forces will operate to increase spending, crowding out private sector activity. History suggests that this possibility is indeed very real.

          This study argues that tax reduction would have very significant positive welfare effects on the American economy. Based on previous research by a large number of scholars, it is reasonable to foresee the equivalent of tens of billions of dollars of new output being created with a significant reduction in taxes. While it is true that from a Keynesian, demand-side perspective, the case for a tax reduction is rather weak, there are compelling arguments that suggest that lowering taxes would promote economic welfare. A tax reduction that approximates the magnitude of the 1998 or projected 1999 budget surplus would provide benefits to Americans measured in tens of billions of dollars annually.

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            WASHINGTON, D.C. - Recent projections of Federal budget surpluses have stimulated discussion about the role of tax policy in the current macroeconomic policy mix. This paper first highlights several key premises underlying pro-growth tax policy:

  • The current tax structure imposes an excessive burden or welfare cost on the economy.

  • Tax rate changes can impact economic incentives in a wide range of ways.

  • Tax policy should focus on long-term economic growth rather than on short-term aggregate spending or business cycle stabilization.

  • Tax rates should be distinguished from tax revenues.

  • Tax relief can work to constrain government spending growth in a number of ways.

  •       Given these premises, the paper highlights a number of considerations supporting tax relief policies at the present time:

  • Marginal tax rates have increased for many taxpayers in recent years.

  • Federal tax revenue as a percent of GDP has increased to historic highs in recent years.

  • Tax rate reduction could contribute to sustaining essential economic growth.

  • Tax relief could help constrain current pressure for more government spending.

  • Tax rate reduction can help to restore a more rational tax policy.

  • Proportional income tax relief to those paying income taxes is fair and equitable.

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            WASHINGTON, D.C. - This analysis examines the arguments for and against the federal estate tax and concludes that the estate tax generates costs to taxpayers, the economy and the environment that far exceed any potential benefits that it might arguably produce.

  • The existence of the estate tax this century has reduced the stock of capital in the economy by approximately $497 billion, or 3.2 percent.

  • The estate tax is a leading cause of dissolution for family-run businesses. Large estate tax bills divert resources from investment and employment and often force families to develop environmentally sensitive land.

  • Empirical and theoretical research indicates that the estate tax is ineffective at reducing inequality, and may actually increase inequality of consumption.

  • The estate tax raises very little, if any, net revenue for the federal government. The distortionary effects of the estate tax result in losses under the income tax that are roughly the same size as estate tax revenue.

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            WASHINGTON, D.C. - A new direction in tax policy is needed to reduce the complexity of the existing system, lower administrative costs, and reduce the biases and inequities endemic in the federal income tax. The resulting tax system should feature greater uniformity of treatment between different types of income, avoiding the multiple taxation of saving. An examination of tax neutrality, economic growth and fairness suggests that the basis of taxation should be shifted from income to consumption.

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    WASHINGTON, D.C. - Marital status may affect a couple's federal income tax liability. Couples who pay more taxes when they are married than they would pay if they were single are said to incur "marriage penalties." Couples who pay less taxes as a consequence of marriage are said to receive "marriage bonuses." This paper discusses the sources of marriage taxes and their economic effects. It then examines some of the proposals that have been offered to reduce marriage penalties.

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            WASHINGTON, D.C. - A proposal that would allow taxpayers to exclude a low level of interest and dividend income from taxation would primarily benefit low- and middle-income taxpayers and would boost saving incentives for small savers and non-savers. If signed into law, such an exclusion would interact with other initiatives, such as lower capital gains tax rates and expanded benefits for Individual Retirement Accounts, to provide new saving incentives to taxpayers across the income spectrum, thus improving the neutrality and efficiency of the U.S. tax code.

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            WASHINGTON, D.C. - The efficacy of America's educational system has become the primary concern of American voters. In response to this concern, various proposals to reform K-12 education have been introduced. This paper argues that, by empowering parents rather than bureaucracies, parental choice programs can improve educational quality and raise academic achievement within the nation's schools. Special consideration is given to proposals that promote choice through saving incentives.

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            WASHINGTON, D.C. - Providing new saving incentives to raise the U.S. saving rate is a primary goal for many policy makers. One of the most important saving incentives under current law is the Individual Retirement Account (IRA). IRAs offer families attractive tax benefits that encourage them to save for retirement, but restrictions on their use prevent or discourage many families from taking advantage of these benefits. Liberalizing these restrictions could substantially increase IRA participation and boost personal saving in the United States, thereby creating new incentives for financial empowerment and economic growth.

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    WASHINGTON, D.C. - Despite government efforts to improve college affordability over the years, it is now clear that federal aid programs have fallen short of their expectations: tuition continues to rise, more students graduate with larger debts, government costs have grown dramatically, and affordability for the neediest students has declined. This paper examines the shortcomings of the federal aid system that have contributed to these trends and considers the most effective federal policies to expand educational opportunities. In particular, it considers the use of tuition tax credits and expanded Individual Retirement Accounts, two of the largest educational provisions contained in the Balanced Budget Act of 1997.

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          WASHINGTON, D.C. - Dr. Lawrence B. Lindsey emphasizes that tax rates tending toward maximization of Federal revenue are not the same as those conducive to economic well-being and economic growth.

        His review of the key concept of Excess Burden (the net loss in economic well-being to the taxpayer from a tax) demonstrates that even when higher tax rates increase government revenue, economic offsets include reduced taxpayer well being, a shrinking tax base, and a lower economic output.

        Lindsey strongly urges the Congress to recognize this explicit trade off, to change its analytic approach to taxation by taking into account the degree of burden imposed at the margin to collect an additional dollar of Federal revenue, and to consider the cost of maintaining today's high rate structure. This approach, he concludes, would allow Congress to do the best job it can at maximizing economic welfare. Please Note: This report was presented as written testimony to the Joint Economic Committee on March 13, 1997.

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          WASHINGTON, D.C. - The statistical evidence demonstrates that the Treasury Department's FEI measure significantly overstates income for most households. The result is that tax relief for the many middle class taxpayers appears as tax relief for upper-income taxpayers.

        A JEC reconstruction of an undisclosed set of Treasury data shows that, although tax relief is provided for all income groups, their shares of the tax burden are unchanged before and after the Congressional tax reduction is taken into account. The results of this JEC analysis demonstrate the misleading effects of an incomplete release of data and illustrate why the Treasury Department should be more open and less selective in providing information to the public.

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    WASHINGTON, D.C. - It is misleading to focus on the burden imposed by payroll taxes without accounting for the future benefits they provide through the Social Security program. Low-wage workers, in particular, can expect to receive retirement benefits that exceed the amount of their payroll tax contributions. In contrast, middle- and high-wage workers can expect to pay more into the system than they will receive in benefits. Consequently, the Social Security system redistributes a substantial amount of money from middle- and high-wage workers to low-wage workers. Thus the payroll tax burden should be viewed in the context of lifetime tax payments and Social Security benefits.

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          WASHINGTON, D.C. - This study analyzes data from previous changes in the capital gains tax rate and concludes that the current capital gains tax rate is too high. The study shows that a reduction in the capital gains tax would generate large revenue gains in the short run and would be roughly revenue neutral in the long run. In addition, a lower capital gains tax rate would improve the efficiency of capital markets and benefit the entire economy. Furthermore, failure to adjust capital gains for inflation results in excessively high effective capital gains tax rates, imposing an unfair burden on taxpayers even when the inflation rate is relatively low.

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          WASHINGTON, D.C. - There is broad recognition that the current tax system is systematically biased against saving, investment, and work effort. One form of bias is the multiple taxation of saving and investment under various provisions of the current income tax structure. Proposals to mitigate this tax bias have been offered by the Clinton Administration as well as by Members on both sides of the political aisle. One proposal that has attracted bipartisan support in the past is the reduction of the capital gains tax rate. This paper weighs the statistical evidence on capital gains tax reduction and finds that such a change would have a positive impact on economic and employment growth. In addition, a capital gains tax reduction would partly abate the problem of taxing inflationary gains.

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          WASHINGTON, D.C. - A number of proposals for tax relief have been introduced by members of Congress from across the political spectrum. Disagreement now lies in how the tax relief should be delivered. In his fiscal year 1998 budget, President Clinton unveiled a targeted tax-cut program which would reward tax credits to certain groups for certain activities. Many economists and policy analysts would prefer a more general, broad-based approach to tax cuts which would not single out specific activities for preferential treatment. Specifically, targeted tax policies are economically inefficient and may encourage abuse of the tax system.

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          WASHINGTON, D.C. - The Administration has proposed a Welfare-to-Work Tax Credit aimed at providing job opportunities for long-term welfare recipients. Several studies have shown that an earlier version of this plan, which also used tax credits to subsidize wages of target groups, was not an effective or economical way of helping target group members obtain jobs. It is unlikely that the new features in the Welfare-to-Work Tax Credit will result in outcomes significantly different than those produced by its predecessor. Furthermore, the proposed plan may create other problems and inefficiencies which are common to targeted tax credits of its kind.

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          WASHINGTON, D.C. - This report finds that the Administration's proposal for a tuition tax credit does not adhere to the principles of good economic design for tax laws, is of limited value as an incentive for post-secondary enrollment to students at the margin, creates minimal stimulus for economic growth, and has the potential for producing a heavy regulatory burden and high administrative cost.

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          WASHINGTON, D.C. - This report examines how tax reduction improves incentives to work, save, and invest and increases long-term productivity and economic growth. The 1960s and 1980s are cited to illustrate the positive effects of tax cuts. Keynesian and free-market perspectives are compared.

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          WASHINGTON, D.C. - This revised JEC study examines new evidence of economic stimulation from tax rate cuts at the national level as well as tax changes at the state level. Five case studies comparing relatively high and low income tax states are presented. In each case, the low-tax state outperformed the high-tax state.

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          WASHINGTON, D.C. - The national debate has been refocused on the need to cut taxes. Opponents of tax cuts question whether they are compatible with a balanced budget. However, states all across the country have recently initiated tax cuts and achieved balanced budgets. Two states of particular interest are Michigan and New Jersey. This report explains how these states have successfully implemented much needed tax cuts while continuing to balance their budgets.

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      WASHINGTON, D.C. - This report shows that it is America's small business owners who bear most of the burden of the 1993 tax rate increase.

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          WASHINGTON, D.C. - This piece outlines the need for tax cuts to stimulate economic growth. It also reviews the history of tax cuts and how they immediately preceded periods of strong economic growth for America.

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          WASHINGTON, D.C. - This brief update outlines the controversy surrounding the capital gains tax. The paper discusses the CBO forecasting error which resulted in revenue losses of $150 billion over a five-year period. That capital gains realizations rise with a tax cut and fall with a tax increase is also addressed.

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          WASHINGTON, D.C. - With four years of data now available on the current economic recovery, it is now possible to compare the record of the pro-economic growth policies of Reagan to the tax-and-spend policies of Presidents Bush and Clinton. This substantive, eight-page report shows how the Reagan recovery achieved faster economic growth, created more jobs, generated more revenue, and saw incomes rise faster than the current Bush/Clinton recovery. The report provides crucial ammunition to fight attacks on pro-growth economic policies, such as the tax cuts contained in the Republican budget.

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          WASHINGTON, D.C. - During the Senate's budget debate, Senator Conrad proposed to close "tax loopholes" to balance the budget. This paper describes the Conrad approach and shows why his proposal amounts to tinkering with the tax code and raising taxes.

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          WASHINGTON, D.C. - This brief update examines serious Congressional Budget Office (CBO) forecasting errors of capital gains realizations for the 1989-1992 period. A graph depicts capital gains realizations from 1978 to 1992, the timing of legislation altering the capital gains tax rate, and the aforementioned CBO projection errors.

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          WASHINGTON, D.C. - This study, widely known as "the $1.59 study," argues that econometric evidence from 1947-1990 indicates that every $1.00 of new federal tax and non-tax revenue generates $1.59 in new spending. Furthermore, the new spending is dramatically associated with increases in income transfers and decreases in defense-related goods and services.

        The historical record shows that new taxes were associated with deficit reduction many years ago, but the federal propensity to spend new taxes has grown in recent decades as the political advantages of new spending have increased. This pattern of spending new revenues was not found at the state and local level where institutional arrangements (e.g., constitutional provisions for a balanced budget) constrain fiscal behavior.

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