New Analysis Finds GOP Tax Plan would Give Richest One Percent of CT Residents $125,380 More Per Year on Average than Obama s Approach

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1 NEWS RELEASE FOR IMMEDIATE RELEASE Wednesday, June 20, Whitney Avenue New Haven, CT Voice: Fax: Contact: Wade Gibson, Senior Policy Fellow, CT Voices for Children, (203) x113, Anne Singer, Citizens for Tax Justice, , ext. 27, New Analysis Finds GOP Tax Plan would Give Richest One Percent of CT Residents $125,380 More Per Year on Average than Obama s Approach Comparison of Two Approaches to Extending Some or All of the Bush Tax Cuts Released Today High-income Connecticut residents would pay $125,380 less in taxes under the Congressional Republicans approach to extending the Bush tax cuts than they would under President Obama s approach, while middleincome and low-income Connecticut residents would pay somewhat more in taxes under the Congressional approach, according to a new analysis from the Institute on Taxation and Economic Policy (ITEP) and Citizens for Tax Justice (CTJ). National figures show the same pattern. As Connecticut families struggle to support their children in this difficult economy, we can t afford a massive giveaway to the wealthiest residents, said Wade Gibson, Senior Policy Fellow at Connecticut Voices for Children, which released the report results about Connecticut. The Congressional tax cut proposal reflects the wrong priorities for families in the state. Under the Congressional Republicans approach, in 2013, the richest one percent would receive an average cut of $152,680, compared to a cut of $27,300 under President Obama s approach a $125,380 difference. In President Obama s proposal 2013, the poorest 20 percent of Connecticut residents would receive an average tax cut of $150, compared to a cut of $100 under the Congressional Republicans approach. The study also finds that in 2013: Of tax cuts that go to Connecticut residents under the Republican plan, 45.8% percent of the cuts would go to the richest one percent, 5.3% percent would go to the middle 20 percent, and 0.5% would go to the poorest 20 percent of state residents. Under Obama s approach, 13.4% percent would go to the richest 1 percent, 8.8% percent would go to the middle 20 percent and 1.3% percent would go to the poorest 20 percent. The Bush tax cuts extension outlined by the President would cost one trillion dollars less over 10 years than would making all the Bush tax cuts permanent. Both President Obama and Congressional Republicans have proposed to extend far too many of these unaffordable tax cuts, said Robert S. McIntyre, director of Citizens for Tax Justice. But if we have to choose between the Congressional Republicans and President Obama s approach, however, the President s proposal is fairer and more responsible. -- MORE --

2 The term Bush tax cuts refers to income tax cuts and estate tax cuts enacted in 2001 and 2003 and extended several times since then. In 2009, President Obama expanded some parts of these tax cuts that benefit low income and working families. In December of 2010, the President and Congress agreed to extend all of these tax cuts through the end of The Republicans in Congress have indicated that they would extend all of the tax cuts first enacted in 2001 and 2003, but not the 2009 expansions for lower income families. President Obama wants to extend the 2001 and 2003 tax cuts only for the first $250,000 a married couple makes annually, or the first $200,000 a single person makes. Obama also wants to extend the 2009 expansions. The national findings from CTJ and ITEP show that in 2013: Under the President s approach, the poorest 20 percent of Americans would receive an average tax cut of $270 while the richest one percent would get an average tax cut of $20,130. Under the Congressional Republicans approach, the poorest 20 percent of Americans would receive an average tax cut of $120 while the richest one percent would receive an average cut of $70,790. Of the tax cuts going to Americans under Obama s approach, three percent would go to the poorest 20 percent of Americans, 9.9 percent would go to the middle 20 percent and 11.4 percent would go to the richest 1 percent. Of the tax cuts going to Americans under the Congressional Republicans approach, one percent would go to the poorest 20 percent of Americans, 7.4 percent would go to the middle 20 percent of Americans and 31.8 percent would go to the richest one percent of Americans. The report also addresses the economic effects of tax cuts versus direct government spending and cites Moody Analytics research concluding that government spending is more stimulative by a factor of five, or more, than tax cuts. The full report is available at and shows the specific distribution of the benefits, and amounts of tax cuts, from the two different approaches in each of the fifty states and the District of Columbia as well as nationally. Citizens for Tax Justice (CTJ), founded in 1979, is a 501 (c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation ( Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a 501 (c)(3) non-profit, nonpartisan research organization based in Washington, DC that focuses on federal and state tax policy. ITEP's mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy ( Connecticut Voices for Children is a research-based think tank that works to advance policies that benefit the state s children, youth, and families ( -END- 2

3 CTJ Citizens for Tax Justice June 20, 2012 Media contact: Anne Singer (202) x27 Income Group Connecticut Taxpayers and the Bush Tax Cuts: President Obama s Approach vs. Congressional GOP s Approach (More information and national figures available at New figures from the Institute on Taxation and Economic Policy (ITEP) show what Connecticut residents would pay under Congressional Republicans proposal to extend all the Bush tax cuts and President Obama s more limited proposal to extend most, but not all, of the tax cuts. In 2013, taxes for the richest one percent of Connecticut residents would be cut by $152,680 on average under the Republican approach and by $27,300 on average under the President s approach. In other words, the richest one percent in the state would pay $125,380 less under the GOP approach than under the President s approach next year. The situation is the reverse for lower income groups. For example, in 2013 taxes for the poorest fifth of Connecticut residents would be cut by $100 on average under the Republican approach and by $150 on average under the President s approach. In other words, the poorest fifth of the state s residents would pay $50 more on average under the Republican approach than under the President s approach. Richest 1% Next 4% Next 15% Fourth 20% Middle 20% Second 20% Poorest 20% $2,150 $2,150 $1,020 $1,040 $630 $690 $100 $150 $12,570 $10,520 $5,520 $5,510 Average Tax Cut in 2013 in Connecticut GOP Approach vs. Obama Approach $27,300 GOP Approach Obama Approach $152,680 Figures rounded to the nearest ten dollars. Source: Institute on Taxation and Economic Policy (ITEP) microsimulation model, June 2012

4 Under the Congressional Republican approach, 45.8 percent of the tax cuts going to Connecticut would go to the richest one percent of the state s residents in 2013 and 58.3 percent would go to the richest five percent of the state s residents. Under President Obama s approach, 13.4 percent of the tax cuts going to Connecticut would go to the richest one percent of the state s residents in 2013 and 30.6 percent would go to the richest five percent of the state s residents. Share of Tax Cuts Going to Each Group of Connecticut Taxpayers in 2013: GOP Approach vs. Obama's Approach Share of Tax Cuts 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 1.3% 0.5% Obama Approach GOP Approach 5.9% 3.3% 8.8% 5.3% 18.3% 11.2% 35.1% 21.4% 17.2% 13.4% 12.5% 45.8% Poorest 20% Second 20% Middle 20% Fourth 20% Next 15% Next 4% Richest 1% Income Group Source: Institute on Taxation and Economic Policy (ITEP) microsimulation model, June 2012 The term Bush tax cuts commonly refers to the income tax cuts (for earnings, capital gains, stock dividends and other types of income) and estate tax cuts first enacted under President George W. Bush in 2001 and President Obama expanded certain parts of the income tax cuts helping low-income families (certain provisions increasing the Earned Income Tax Credit and Child Tax Credit) as part of the 2009 economic recovery act. At the end of 2010, after much debate, President Obama and Congress enacted legislation that extended all these tax cuts for two years, through the end of Beginning in 2013, President Obama proposes to make permanent the income tax cuts for the first $250,000 a married couple makes annually and the first $200,000 that a single person makes annually. This would mean, for example, a married couple with $1 million in income would continue to enjoy the lower tax rates enacted under President Bush for (at least) their first $250,000 of income in a year, but would pay the higher tax rates in place at the end of the Clinton years on the remaining $750,000 of their income. Only 1.9 percent of Americans and 3.6 percent of Connecticut residents would lose any portion of the Bush income tax cuts in 2013 under President Obama s proposal. 2 1 The partial exception is the estate tax cut enacted under President Bush in That provision gradually cut the estate tax over a period of years until repealing it entirely in The law enacted by President Obama and Congress in 2010 slashed the estate tax steeply for 2011 and 2012 but did not extend the full repeal of the estate tax.

5 Congressional Republicans propose to extend the Bush income tax cuts for all levels of income, which is one reason why high-income Americans would receive a much larger average tax cut under the Republican approach. Competing Approaches to the Bush Tax Cuts, Impact in 2013 in Connecticut State Taxpayers Obama's Approach (Extend Bush income tax cuts for first $200k/250k, estate tax cut, extend EITC and child credit expansion from recovery act) Republican Approach (Permanent Bush income tax cuts for all income, estate tax cut more, no EITC or child credit expansion from recovery act) Republican vs. Obama Approach Income Group Average Income Average Tax Cut Share of Tax Cut Average Tax Cut Share of Tax Cut Average Difference Poorest 20% $13,870 $ % $ % $+50 Second 20% 34, % % +60 Middle 20% 57,330 1, % 1, % +20 Fourth 20% 93,850 2, % 2, % Next 15% 166,720 5, % 5, % 10 Next 4% 422,100 10, % 12, % 2,050 Richest 1% 2,583,700 27, % 152, % 125,380 ALL $109,770 $ 2, % $ 3, % $ 1,480 Bottom 60% $35,290 $ % $ % $+50 Figures rounded to the nearest ten dollars. Source: Institute on Taxation and Economic Policy (ITEP) tax microsimulation model, June Beginning in 2013, President Obama also proposes to make permanent part of the cut in the estate tax. The President would allow married couples to pass on at least $7 million in assets taxfree. The estate tax cut in effect now, which Republicans propose to make permanent, allows married couples to pass on at least $10 million in assets tax-free and taxes the rest at (in billions of dollars) a lower rate. This is the second reason why high-income personal income tax cuts* $ Americans would receive a much higher average tax cut estate tax cuts* $ under the Republican approach. Beginning in 2013, President Obama also proposes to make permanent the expansions of the Earned Income Tax Credit and Child Tax Credit enacted in 2009, which the Republicans oppose. This is the reason why low-income and middleincome groups would pay more, on average, under the Republican approach than they would pay under President Obama s approach. The President s approach would cost $1 trillion dollars less (including interest payments on the resulting debt) over the next decade than the GOP approach, as illustrated in the table to the right. 10-Year Cost Difference Congressional GOP Approach to Tax Cuts vs. President's Approach 2009 Child Tax Credit expansion** $ EITC expansions** $ 26.7 total before debt service $ debt service*** $ TOTAL including debt service $+1,014.6 * See "General Explanations of the Administration's Fiscal Year 2013 Revenue Proposals," Department of the Treasury, February 2012, page 203. ** See Citizens for Tax Justice, "President Obama s 2013 Budget Plan Reduces Revenue by Trillions, Makes Permanent 78 Percent of Bush Tax Cuts," February 14, *** Debt service calculated by Citizens for Tax Justice based on Congressional Budget Office interest calculations. 2 President Obama s proposal would allow the top two income tax rates to revert to their pre-bush levels and would adjust the income tax brackets so that no married couple with adjusted gross income (AGI) of less than $250,000 could fall into the top two tax brackets and no single person with AGI of less than $200,000 could fall into the top two brackets. These amounts would be indexed for inflation from 2009, when President Obama first formally made this proposal. This means that in 2013 a married couple would continue to enjoy the Bush income tax cuts for (at least) their first $264,850 of income and single people would continue to enjoy the tax cuts for (at least) their first $211,800 of income. Some taxpayers with income over these thresholds would not lose any portion of the Bush income tax cuts because deductions and exemptions would prevent them from falling into the top two income tax brackets.

6 Some claim that the economy will suffer if the Bush tax cuts expire as scheduled at the end of this year, but the expiration of the Bush tax cuts would only mean that the tax rules revert to those in place at the end of the Clinton years, when the economy was performing better than it is today. There is even less reason to worry about the economic effects of Obama s approach, which would fully extend the tax cuts for 98.1 percent of Americans and partially extend the tax cuts for the richest 1.9 percent. Many economists agree that if Congress is willing to forego revenue (and increase the deficit) in order to boost the economy, there are far more effective measures than the Bush tax cuts. For example, the noted economist (and former adviser to presidential candidate John McCain) Mark Zandi has concluded that for every dollar of revenue the federal government would lose from making permanent the Bush income tax cuts, U.S. economic output would increase by only 35 cents in the following year. On the other hand, he finds that for every dollar the federal government spends on increased food stamps, work share programs, or unemployment benefits, U.S. economic output would increase by $1.71, $1.64, and $1.55 respectively. 3 Bush Tax Cuts Create Far Less Economic Growth than Spending Measures Dollars of Economic Output Resulting in Following Year from Each Dollar Spent $0.35 $1.44 $1.55 $1.64 $1.71 Make Bush Income Tax Cuts Permanent Increased Infrastructure Spending Extending Unemployment Insurance Benefits Temporary Federal Work-Share Programs Temporary Increase in Food Stamps Policy Option Source: Written Testimony of Mark Zandi, Chief Economist and Co-Founder, Moody s Analytics, February 7, These spending programs do more to boost the economy because they put money in the hands of people who are likely to spend it immediately, which allows the companies selling consumer goods and services to maintain or increase employment. The Republican proposal to extend the Bush income tax cuts would disproportionately benefit the wealthy, who tend to save a larger portion of their income, and would therefore provide far less of a boost to the economy. The same would clearly be true for the Republican proposal to extend the estate tax cut in place now. 3 Written Testimony of Mark Zandi, Chief Economist and Co-Founder, Moody s Analytics, February 7,

7 Appendix: Details on Congressional GOP Approach and President Obama s Approach to the Expiring Tax Cuts The table to the right explains which tax cut provisions (which all expire at the end of 2012) would be extended under the Congressional Republicans approach and President Obama s approach. * President Obama proposes to adjust the brackets so that no married couple with adjusted gross income (AGI) below $250,000 and no single person with AGI below $200,000 (in 2009 dollars) can fall into the top two income tax brackets. This means that in 2013 a married couple would continue to enjoy the Bush income tax cuts for (at least) their first $264,850 of income and single people would continue to enjoy the tax cuts for (at least) their first $211,800 of income. Some taxpayers with income over these thresholds would not lose any portion of the Bush income tax cuts because deductions and exemptions would prevent them from falling into the top two income tax brackets. ** The personal exemption phase-out and the itemized deduction disallowance limit the ability of relatively high-income taxpayers to reduce their taxable income with personal exemptions and itemized deductions. These limits were repealed as part of the Bush tax cuts, and Congressional Republicans would make permanent this repeal. President Obama proposes to allow the personal exemption phase-out and the itemized deduction disallowance to come back into effect, but only for married couples with AGI in excess of $250,000 and single taxpayers with AGI in excess of $200,000 (in 2009 dollars). *** If the estate tax cuts are allowed to expire at the end of this year as scheduled under current law, married couples will be allowed to pass on at least $2 million in assets tax-free and the taxable portion of an estate will be taxed at a top rate of 55 percent. The tax cut in effect now, which Republicans propose to make permanent, allows couples to pass on at least $10 million in assets tax-free and taxes the taxable portion of an estate at a top rate of 35 percent. President Obama proposes an estate tax that is smaller than the one that would come into effect under current law if Congress does nothing, but larger than the one that would exist under the Republican proposal to extend the current estate tax cut. Under the President s proposal, married couples would be allowed to pass on at least $7 million in assets taxfree, and the taxable portion of an estate would be taxed at a top rate of 45 percent. Tax Break Income Tax Cuts First Enacted 2001 and 2003 reduction of the 36% and 39.6% rates to 33% and 35% reduction of the 28% and 31% rates to 25% and 28% introduction of the ten percent tax bracket (lowest bracket was previously 15 percent) Congressional Republicans President Obama Expire* reduction of rates for capital gains in bottom four brackets from 10% and 20% to 0% and 15% reduction of rates for capital gains in top Expire* two brackets from 20% to 15% reduction of rates on stock dividends in bottom four brackets from ordinary rates to capital gains rates reduction of rates on stock dividends in top two brackets from ordinary rates to capital gains rates Expire* expansion of Child Tax Credit elimination of marriage penalty in the standard deduction elimination of marriage penalty in the 15 percent rate bracket reduction in marriage penalty in the Earned Income Tax Credit. expansion of the Dependent Care Credit repeal of the personal exemption phaseout Partly ** repeal of the itemized deduction Partly ** disallowance increase in the exemptions in the Alternative Minimum Tax (AMT) 2009 Expansions of Certain Income Tax Cuts further reduction in the "marriage Expire penalty" in Earned Income Tax Credit increase in Earned Income Tax Credit Expire for larger families making the refundable part of Child Tax Expire Credit more accessible to lower-income earners Estate Tax Cuts increase in amount of assets exempt from Partly *** estate tax reduction in estate tax rate Partly ***