May
21
Kyle Pomerleau on Apple's Tax Hearing in the Senate
For more on corporate taxes, see Kyle's recent study "U.S. Multinationals Paid More Than $100 Billion in Foreign Income Taxes."
How the Bush Tax Cuts Affect Families with Children at Different Income Levels
January 07, 2003
Fiscal Fact No. 2
Today, President Bush outlined his economic growth plan which would accelerate all of the phased-in individual tax changes enacted in 2001. These include:
- Raising the child tax credit from $600 to $1,000. For a family with two children (earning less than $110,000 per year), this provision alone will mean a tax cut of $800.
- Reducing the marriage penalty by (1) setting the standard deduction at 2 times the single amount for married couples filing jointly (this increases the standard deduction from $7,950 to $9,500 for couples), and (2) setting the top 15% bracket threshold at 2 times the single amount for couples (this increases the top amount in the 15% bracket from $47,450 to $56,800).
- Expanding the income threshold of the new 10% rate from $12,000 for couples to $14,000.
- Accelerating all of the marginal rate cuts to January 1, 2003 (the new rates are: 10%, 15%, 25%, 28%, 33%, 35%).
These changes affect families in different ways at different income levels. For example, raising the child credit amount has the biggest impact on families earning below $110,000 per year – the phase out level – while the marginal rate cuts are more beneficial to families with higher incomes. The marriage penalty changes are most beneficial for families earning up to about $75,000 per year.
For the median family with two children, earning $67,000 per year, the Bush plan would mean a tax cut of $1,133 this year, erasing 22% of their current tax liability. A family earning $40,000 will see 96% of their tax liability erased, while a family earning $200,000 will see just 9% of their tax liability erased.
The calculations below assume a working couple with two children. We also assume the standard deduction for families earning $40,000 to $75,000. For families earning $100,000 and above, we assume itemized deductions worth 20% of AGI.
Families earning below $35,000 are not included because the tax cuts enacted in 2001 effectively eliminated their entire income tax liability.
|
Current Law |
Bush Plan |
|||||
|
Adjusted Gross Income |
Taxable Income (After Deductions and Exemptions) |
Tax Liability |
Taxable Income (After Deductions and Exemptions) |
Tax Liability |
Tax Cut in Dollars |
Tax Cut as a Percentage of Liability |
|
$40,000 |
$19,850 |
$1,178 |
$18,300 |
$45 |
$1,133 |
96% |
|
$50,000 |
$29,850 |
$2,678 |
$28,300 |
$1,545 |
$1,133 |
42% |
|
$67,000 |
$46,850 |
$5,228 |
$45,300 |
$4,095 |
$1,133 |
22% |
|
$75,000 |
$54,850 |
$7,316 |
$53,300 |
$5,295 |
$2,021 |
28% |
|
$100,000 |
$67,800 |
$10,812 |
$67,800 |
$8,570 |
$2,242 |
21% |
|
$150,000 |
$108,046 |
$22,878 |
$108,046 |
$20,632 |
$2,247 |
10% |
|
$175,000 |
$128,796 |
$28,905 |
$128,796 |
$26,243 |
$2,662 |
9% |
|
$200,000 |
$149,546 |
$35,130 |
$149,546 |
$32,053 |
$3,077 |
9% |
Assumptions:
Wage and Salary income only for a working couple with two children.
Standard deduction for families earning $40,000 — $75,000.
For families earning $100,000+ assume itemized deductions worth 20% of AGI.
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