Washington — A report released by the nonpartisan Congressional Budget Office on the shift in effective tax rates through the next decade resulting from the wave of tax legislation enacted between 2001 and 2003 has sparked a political debate in Washington.
In its report, “Effective Federal Tax Rates Under Current Law, 2001 to 2014,” the CBO noted that, under current law, the total effective federal tax rate for all taxpayers drops from 21.5 percent in 2001 to 19.6 percent in 2004 before reversing course and climbing over the next decade.
Democrats on the Joint Economic Committee issued a press release on the report saying it confirmed that “the Bush administration’s tax cuts disproportionately benefit the richest American households. Based on the new CBO data, the Joint Economic Committee Democratic staff calculates that, in 2004, the average tax cut for the 1 percent of households with the highest incomes is more than 70 times the tax cut for middle-income households.” The Democratic JEC press release concludes, “By skewing the tax cuts enacted since 2001 to the rich, the Bush tax cuts have resulted in an even greater disparity in the growth of income after taxes.”
Republicans, meanwhile, have launched a counteroffensive, saying the study actually shows that President Bush’s tax cuts have reduced the overall tax burden for middle-income taxpayers.
The Democrat-requested analysis of effective federal tax rates from 2002 through 2014 uses data on incomes in 2001, the most recent year for which information is available. From a 2004 low of 19.6 percent, the overall effective tax rate jumps to 21.4 percent in 2005 as most features of the Jobs and Growth Tax Relief Reconciliation Act of 2003 and the Job Creation and Worker Assistance Act of 2002 disappear, decreasing the child credit, lessening the relief from marriage penalties, and raising the alternative minimum tax, the CBO said.
The effective rate climbs to 22.1 percent in 2010, the CBO said, primarily because the AMT affects more and more people and the growth of real incomes pushes taxpayers into higher tax brackets. The report notes that by 2014, nearly 22 million taxpayers will be subject to the AMT.
The CBO said that the effective tax rate takes another jump to 23.6 percent in 2011 after the Economic Growth and Tax Relief Reconciliation Act of 2001 sunsets and resumes a slow climb, driven by continued real income growth and the widening reach of the AMT.
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