Statement by Sens. Grassley, Nickles, Bennett regarding CBO paper on federal tax rates
Senator Chuck Grassley of Iowa, Chairman of the Senate Committee on Finance
Senator Don Nickles of Oklahoma, Chairman of the Senate Budget Committee
Senator Robert Bennett of Utah, Chairman of the Joint Economic Committee
regarding A Congressional Budget Office Paper
Effective Federal Tax Rates Under Current Law, 2001 to 2014”
Friday, August 13, 2004
Taken together, the tax cuts of 2001, 2002 and 2003 made the income tax system moreprogressive, so wealthy taxpayers pay a higher share of federal income taxes. The income taxburden on middle-income Americans was dramatically reduced with the changes made tothe child tax credit, marriage penalty and marginal rates. Thanks to this legislation, middleincomefamilies pay a lot less income tax, and an additional 15 million low-income taxpayerswill owe no income tax at all. That’s a record 44 million low-income taxpayers in 2004, upfrom 29 million in 2000.
Today’s Washington Post story about the new Congressional Budget Office paper failsto describe a key fact that affects tax data in 2004. As a result, readers are misled about howthe 2001, 2002 and 2003 tax cuts shifted the tax burden. Here’s why. The 2002 tax cutincluded accelerated bonus depreciation provisions to help small businesses invest in capitaland create new jobs. These provisions were included in bipartisan legislation passed whenDemocrats controlled the Senate. They were aimed at stimulating the sluggish economy,especially in 2003 and 2004. The Congressional Budget Office allocates the bonusdepreciation provisions to high-income taxpayers under the assumption that they will ineffect receive the benefit. By focusing only on the 2004 tax burden, when these bonusdepreciation provisions are ramped up for maximum help to the economy, the Post reportignores the real picture of the tax burden spelled out by the Congressional Budget Office. Thereal picture is this. High-income taxpayers had a comparable reduction in tax burden tomiddle-income taxpayers due to the Bush tax cuts. And, wealthy taxpayers generally arepaying a greater percentage of all federal income taxes than they were before the 2001, 2002and 2003 tax cuts. This change makes the income tax system more progressive.
Income taxes were too high when President Bush took office. Since World War II,taxes as a percent of the economy averaged around 18 percent of the gross domestic product.
In 1992, taxes were about 17 percent of the gross domestic product. By 2000, federal taxeshad exploded to 20.8 percent of the gross domestic product. What’s worse, this historicallyhigh tax burden was shouldered by individual taxpayers. And, today’s paper by theCongressional Budget Office confirms that taxes would have gone up on all taxpayers,including low-income and middle-income, by significant amounts if Congress had not passedtax relief measures. Effective tax rates would have gone up across the board by one to twopercent. By delivering significant tax relief for individual taxpayers and containing the effectsof bracket creep and other tax system biases, the tax legislation of 2001, 2002 and 2003 ishelping the economy recover. Federal Reserve Chairman Alan Greenspan testified that thetax cuts helped ensure that the 2001 recession was mild and brief and provided stimulus tokeep the current rebound on track. The legislation put more money in family budgets andhelped small businesses grow and create jobs.
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