USA Today: All Taxpayers Enjoyed Tax Relief Since 2000

October 2, 2006

This morning’s USA Today highlights a recent Tax Foundation “Fiscal Fact” on the impact of the 2001 and 2003 tax cuts on the tax liabilities of Americans in various income groups. The bottom line: Americans in all income groups have enjoyed tax reductions since 2000, not just those with the highest incomes. From the piece:

Americans of every income have benefited from a drop in federal income tax rates as Bush administration tax cuts enacted since 2000 took effect, an independent analysis of newly released IRS data shows.

But those earning $75,000 to $500,000 are shouldering a larger share of total taxes paid as millions more of them earn higher incomes and get hit with the Alternative Minimum Tax, the analysis also found.

The review by the Tax Foundation, a non-partisan research group that favors low taxes, provides one of the first detailed looks at the impact of federal tax changes phased in between 2000 and 2004.

Alluding to the political debate that often surrounds tax issues, Gerald Prante, a Tax Foundation economist, said, “It is true that in dollar amounts the rich have gained the most. But everybody’s tax rates have fallen.”

The analysis showed, for example, that a taxpayer who earned $35,000 in 2000 would have paid 8.54% of that income — $2,989 after credits — in federal taxes. In 2004, federal taxes would have accounted for 5.12% of that taxpayer’s annual income, or $1,792. That represents a 40% decrease in tax burden.

At the higher end of the income brackets, a $1.75 million earner would have paid $513,625 in 2000 federal taxes, when the rate for that earning bracket was 29.35%. Four years later, when the rate dropped to 25%, that earner would have paid $437,500. That represents a 14.8% cut in tax burden, the analysis shows.

Millions of upper-middle and moderately high-income earners also benefited from tax rate cuts. But the analysis shows their savings was limited by the Alternative Minimum Tax, which eliminates some deductions and credits they could otherwise claim on federal tax returns. The levy particularly hits those whose high state and local taxes become ineligible for federal tax deductions.

Read the full USA Today piece here. Read the original “Fiscal Fact” that the story was based on here. For a summary of how much federal income taxes are paid by different income groups, see our recent analysis here.


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