Fiscal Fact No. 17
One of the biggest mistakes made in recent reports on the effects of the Bush tax cuts is that they fail to account for the highly varied composition of taxpayers within each income group. Despite the fact that no taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. return is alike, analysts tend to lump taxpayers into broad income groups (called quintiles, or fifths) and estimate how the tax cuts benefited taxpayers generally within each income group.
For example, a well cited analysis by the Tax Policy Center, a joint project of the Brookings Institution and Urban Institute, determined that the top fifth of taxpayers received roughly 65 percent of the tax cuts while the middle fifth received only 10 percent of the benefits. To critics, these results are proof that the tax cuts unfairly benefited only the rich. But these results are perfectly understandable if we look at the composition of single and married taxpayers within each income group.
Table 1 displays the distribution of married and single taxpayers within each income group, their tax liability before the Bush tax cuts, and their tax liability after the tax cuts. The table clearly shows that single taxpayers comprise the vast majority of taxpayers within the first, second, and middle income groups, while married couples are overwhelmingly found in the highest two income groups.
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Table 1: Estimated Tax Distribution Before and After Bush Tax Cuts, by Income Class |
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Income Group (all taxpayers) |
% of Quintile Married |
Married Filing Jointly or Separately (48% of All Returns) |
% of Quintile Single |
Single and Heads of Household |
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% of Total Taxes Paid Before Tax Cuts |
% of Tax Cuts |
% of Total Taxes Paid After Tax Cuts |
% of Total Taxes Paid Before Tax Cuts |
% of Tax Cuts |
% of Total Taxes Paid After Tax Cuts |
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| Bottom 20% ($0 to $14,415) |
16% |
0.02% |
0.07% |
0.01% |
84% |
0.25% |
0.59% |
0.17% |
| Second 20% ($14,415 to $25,499) |
29% |
0.37% |
1.07% |
0.22% |
71% |
1.89% |
3.11% |
1.64% |
| Third 20% ($25,500 to $41,640) |
43% |
1.86% |
5.04% |
1.20% |
57% |
4.05% |
4.40% |
3.98% |
| Fourth 20% ($41,641 to $68,295) |
69% |
7.52% |
13.33% |
6.33% |
31% |
5.09% |
4.24% |
5.26% |
| Top 20% ($68,296 and above) |
86% |
67.41% |
59.93% |
68.95% |
14% |
11.55% |
8.21% |
12.23% |
| Total |
– |
77.18% |
79.45% |
76.71% |
– |
22.82% |
20.55% |
23.29% |
For example, just 16 percent of all the taxpayers in the poorest quintile of taxpayers are married couples (those filing jointly or separately), while 84 percent of those “poor” taxpayers are single workers or single parents with children. These taxpayers pay virtually no income taxes to begin with so, naturally, they received very little in benefits from the Bush tax cuts.
At the other end of the income spectrum, 86 percent of the so-called “richest” 20 percent of taxpayers are married couples (63 percent are dual income), while just 14 percent of these higher income taxpayers are singles. Because so many of these dual-income working couples are in higher tax brackets, they naturally pay most of the income taxes today. Remarkably, married couples in the wealthiest quintile account for just 17 percent of all tax returns, but they pay a whopping 68 percent of all income taxes. Considering that tax burden, we should not be surprised that these “upper-income” married couples received 60 percent of the Bush tax cuts.
One of the most generous components of the tax cut plan was the increase in the value of the child credit from $500 to $1,000. Since married couples in the top two income groups raise the majority of children in America, the bulk of the child credit benefits accrued to these above average-income married couples.
While the candidates often talk about helping the “middle-class,” the majority of taxpayers within the statistical middle (those taxpayers earning between $25,500 and $41,640) are single, not traditional married couples with children. Since there are so few dependent children and working married couples in the statistical middle, it is not surprising that this income group received so little of the Bush tax cuts.
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