The 2001 Tax Cut: One Year LaterUrban Institute Crafted in a budget surplus era now long gone, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was the biggest tax cut in 20 years and was intended to stimulate economic growth. Is it succeeding so far?
June's First Tuesday forum looked at the 2001 tax cut from the vantage point of one year later. Panelists examined the features and consequences of EGTRRA; discussed the effects that tax cuts have on individuals, the economy, productivity, and government spending; analyzed the explosive growth of the Alternative Minimum Tax (AMT) and considered alternatives to it; and explored the political considerations of tax cuts.
The forum also served to introduce the Urban-Brookings Tax Policy Center (www.taxpolicycenter.org), a joint project of the Urban Institute and the Brookings Institution that seeks to fill the growing need to clarify and analyze the nation's tax policy choices by providing timely, accessible analysis and facts about tax policy to policymakers, journalists, interested citizens, and researchers.
The forum was moderated by Jodie Allen, managing editor for money and business at U.S. News & World Report. Panelists were Leonard Burman, a senior fellow at the Urban Institute and co-director of the Urban-Brookings Tax Policy Center; Eric Engen, a resident scholar at the American Enterprise Institute; William Gale, a senior fellow at the Brookings Institution and co-director of the Urban-Brookings Tax Policy Center; and William Frenzel, a guest scholar at the Brookings Institution and former congressman (R-MN).
Panel Highlights | Questions from the Audience | Full Transcript | Selected Resources
William Gale, Brookings Institution
The basic elements of EGTRRA involve income tax rate reductions which are phased in over time, and reductions and eventual repeal of the estate tax starting in 2010. Aside from that, there are also numerous tax cuts aimed at children, marriage, retirement, savings, education, and so on. But the main features are the income tax cuts and the repeal of the estate tax.
However, EGTRRA also left significant unfinished business, you might call it, in two respects. The first is that the entire tax cut sunsets at the end of 2010, that is, all the provisions expire, and we go back to the system that existed in 2001 indexed as it would be for inflation over the decade. No one thinks that that's actually going to happen, that the tax cut would actually sunset, although some of us might harbor secret hopes. But at the very least, it leaves a lot of residual uncertainty about the course of tax policy.
The second element of unfinished business has to do with the alternative minimum tax [AMT]... [T]he issue here is that under EGTRRA the number of taxpayers that will face the AMT is going to rise to something like 40 million, or over a third of all taxpayers by the end of the decade.
...[W]hat the analysis shows is that the tax cut by itself is not sufficient to raise economic growth, and that's the finding not only of our paper but of several other papers that have appeared in the last several months. So the net result, I think, is either that we get little effect, or possibly a negative effect on growth over the next 10 years, or we do get a growth effect that comes from the decline in spending, not from the decline in taxes.
Eric Engen, American Enterprise Institute
...[O]ne of the important factors [to realize] in increasing federal taxes as a share of GDP, particularly in the late nineties, as we saw very robust growth, was that we had real economic growth pushing taxpayers into higher tax brackets. In other words, we had real bracket creep. And that is where [some people], because their real wages are rising, even though the tax code is indexed for inflation it's not for real economic growth, are moved up into higher brackets.
... As well, more uncertain types of effects may come through ... on human capital, in other words, [on] the productivity of labor and the productivity of capital, although the economic analysis, and particularly statistical analysis is much thinner and is definitely more uncertain. I think the bottom line is that we would tend to believe that the tax reductions would increase labor, increase capital, which would increase real GDP.
... The federal tax burden is still above the average in the postwar period. Lower marginal tax rates tend to take back some of the changes that I think many of us up here thought were good with the tax reform in '86. And also, where I think there should be more discussion is that as well it takes away some of the effects of real bracket creep. Lower marginal rates tend to increase economic growth, I think is my conclusion at the end of the day. I find it hard to believe that economic growth would be boosted by raising taxes. And finally, lower tax revenue will tend to restrain federal spending to at least some degree.
Leonard Burman, Urban Institute
...The AMT came to our planet in 1969 when the Secretary of the Treasury Joseph Barr reported that 155 individuals with income over $200,000 paid no income taxes in 1967. His testimony unleashed a firestorm of protest. There were actually more letters to Congress complaining about those 155 high-income tax avoiders in 1969 than there were letters complaining about the Vietnam War, which was really remarkable. So Congress created the AMT, it expanded, and ultimately it morphed into this ugly alternative tax system that hit many people who aren't millionaires. It's not indexed for inflation, so every year inflation pushes more and more taxpayers onto the AMT.
One of the big disappointments of the 2001 Tax Act is that it missed an opportunity to simplify-you can see that even before the enactment of EGTRRA, the number of people on the AMT was scheduled to explode. It was going to increase to 22.6 million by 2012. Well, EGTRRA did pass some reforms for three years, they were even more temporary than the rest of the bill. And then after that... the increase in the exemption level expires, [and] the number of people on the AMT just explodes. It's almost twice as high by 2012, assuming that EGTRRA is extended, than it would be without the 2001 Tax Act. Even in 2010 there are 35 million people on the AMT. And this happens because the 2001 Tax Act cut tax rates under the ordinary income tax, but it didn't do anything to tax rates under the AMT. ... [F]or people with incomes between $75,000 and $500,000 more than half of the tax cut is effectively rescinded by the AMT. People who were on the AMT before the tax cut was effected get no benefit from the income tax cuts, because they're not on ordinary income tax, and a lot of people were pushed on the AMT as well.
William Frenzel, Brookings Institution
Some parts of EGTRRA I like better, and some I like less well. But, in general, I'm comfortable with the bill. I don't think most people believe that 40 percent is an effective marginal rate. I don't think people argue about IRAs and 401s, and estate tax reductions. As a matter of fact, when you call the roll of the elements of EGTRRA, you probably are not surprised that the public liked it better than economists did. But, the public is fickle. The Clinton veto in '99 of a similar bill was not unpopular. Just this last December when the Senate closed down, deciding that it couldn't do a secondary, following stimulus bill, that action was unpopular. And when the Senate came back it was obliged to pass a second one. So one never knows in this business where one tracks with the public.
... Tax cuts may slow spending, and some people have referred to this on the panel, in the long term, but I wouldn't bet the rent money on it in any kind of short-term situation. We do not have any surpluses now; Congress is having no difficulty spending money, now using the excuse of emergency. But, tax cuts—I mean, spending is a little bit like the blob, it's irresistible. And it simply goes forward.
Peter Orszag, Brookings Institution
Combining Bill's point that if we allow the sunset to occur, the revenue change would be 1.4 percent of GDP, and Eric's point that about half of that would be offset by spending, if we accept that for the sake of argument, we're left with a net saving of about .7 percent of GDP. It so happens that that's about the cost of the general revenue transfers under models two and three for the Social Security Commission that Mr. Frenzel served on. So I was wondering, if you only had to choose one, would you make EGTRRA permanent, or would you finance those general revenue transfers? And perhaps you don't accept the choice of having to choose one, but do you see a trade-off there?
William Frenzel, Brookings Institution
No, I find the hypotheticals obnoxious. And I always try to extend my options well beyond the range proposed by the question. I'd prefer to keep social security taxes the way they are now, and I'm still waiting for some suggestions from others as to how to remedy that situation. Like Congressman Thomas, however, I may wait in vain. But I am not one who believes that the tax on estates should either sunset, nor be reinstated. I believe there is a position in-between someplace. I believe that if the super-rich insist on paying estate taxes, they should be granted that favor. But I don't know whether the 2008 position is a good place to be, or the 2009 position. But I feel confident that Congress is going to attack that problem. But with respect to the year 2010, I would not use whatever savings would occur in that year, I would not designate it for a special purpose at this time.
Jim Klumpner, House Budget Committee
I had two quick questions for Eric Engen. You said that you had a hard time believing that raising taxes increased growth. Clearly, you believe that lower taxes helped growth. In the late 1990s real growth averaged 4 percent on a real basis, this would have been when real bracket creep would have been having its greatest disincentive effects. How much faster would you guess growth would have been in the late 1990s if we had not raised taxes on upper-income people in '93?
The second question was, you also ventured an estimate that a $1 reduction in taxes resulted in a half a dollar decrease in federal spending. If you run a simple correlation between federal non-interest spending and taxes you see quite a strong relationship between tax increases and spending decreases, and vice versa. Clearly, there is some third or fourth factor going on. What would you identify as the other factors which overwhelmed the 50 cent effect that you hypothesized?
Eric Engen, American Enterprise Institute
I guess with respect to your first question on how much higher would growth be had we [not] had the '90 and '93 tax increases, I haven't run through that calculation, so I wouldn't want to say a number right now without actually doing that. I think that the effect would be somewhat higher. I'm not sure exactly what kind of number.
Now, one thing I do want to note and actually answer the question I thought you were going to ask, is that some people say, look, in the nineties we had this experience of the rate increases, particularly in '93, and growth took off. And I think one of the things we need to be careful of is this sort of simple—kind of one snapshot, time series correlation. Those kinds of things are often times used on the other side, I think just as incorrectly—I've written on this before. For example, people state that economic growth really took off after the Kennedy tax cuts in the early nineties, and that proves that tax cuts improve growth, or that growth really took off in the early eighties, after the '81 tax cut. And I think both those cases miss a very important and difficult thing to do, and that is, you have to try to control for other things. And so I think these one-time-period kinds of things are difficult to look at.
The other is, on the tax-and-spend relationship, a couple of things. If you run some of the correlations in short enough time periods, say, in the late nineties, you see taxes and spending on level terms go in opposite directions. If you look over the longer time period, say, if I put a spending to GDP graph up that matched the tax one, what you'd see is the general trend of both of those going up, and so there over a longer frequency you would tend to see a positive correlation.
Without getting into the econometric details, there are various things that you have to do when you have these long-run trends to make the series comparable. And once you do those, and in the analysis I did is that rather than looking at just the trend change, you look at what is the one period to one period change, you then have the appropriate time series properties for those series that you can then do the analysis, and what that shows, regardless of controlling for the other economic factors that are changing, such as GDP and unemployment, and those things, much to my surprise, you get this estimate of $1 in tax change is offset by a half a cent in spending.
Randall Bovbjerg, Urban Institute
Obviously there is some dislike for hypotheticals, there may be some difficulty resolving differences in econometrics in a forum like this, but I'm looking at two bullets from the first and second presentations from Bill and Eric. The first one says outlays in 2000 were the lowest share of GDP in 34 years. The second one says the tax burden reached a post-World War II high of almost 21 percent of GDP 2000. Could you guys discuss this please?
Leonard Burman, Urban Institute
We had a big surplus.
Eric Engen, American Enterprise Institute
That's exactly correct, that's the facts.
Bob Lerman, Urban Institute
I'm looking at Bill's table, that wasn't in the presentation, but I looked in your paper while you were speaking. And if you look at the distributional effects that you cite, it looks as if—I'm just looking at this for the first time. But, it looks like while it's true that the top 1 percent got a higher percentage reduction in tax payments than the average, much of the other—the groups that seem to have gotten a much lower share than the average were, let's say, the 90 through 95 percent group, which is clearly a high-income group, and then even the group that is 80 to 95 percent, and the 60 to 80 percent group. So I would think that the distributional impact is at least a little more complex than what you were saying.
William Gale, Brookings Institution
... [T]he numbers in the paper assume that the AMT is repealed. I mean, that we have a major league AMT problem in 2010. These numbers assume that 35 percent of taxpayers are on the AMT. And so the AMT cuts into the tax cut that the 80th to the 99th percentile would get, for precisely the reason that Len talked about. If you adjusted the AMT downward, you'd see much bigger impacts there. I was unable to do that at the time I wrote this paper, because the AMT model wasn't done. But, the reason—
Bob Lerman, Urban Institute
Then you'd have to pick out an AMT plan of some kind, right?
William Gale, Brookings Institution
... This table is based on the law in 2010, as legislated, all right; under current legislation 35 or 39 million households are going to be on the AMT in 2010, and that's why this is the take back. What you're saying is exactly the take back that Len is talking about.
Leonard Burman, Urban Institute
If you hold the AMT constant, the people with income between $50,000 and $500,000 would get three times as big a tax cut. In other words, if the AMT were just frozen at the pre-EGTRRA levels they would get three times as big a tax cut as they actually got, because of the AMT. So you do see a blip. In any table showing the distribution of the income tax cuts from AMT there is a drop in the income range, in the percentage of income that the tax cut reflects.
Bernard Wasow, Century Foundation
I was struck that apart from Bill Gale, nobody really looked at the long run at all. We are assessing a tax cut a year later—to me it looks an awful lot like Ronald Reagan redux: you come in, you cut taxes, you jack up military spending. If one projects on reasonable assumptions there are huge fiscal deficits down the road. Doesn't that bother Mr. Engen, or Congressman Frenzel, or is that just simply too far into the future to worry about?
Eric Engen, American Enterprise Institute
Yes, certainly, but I think it's important, at least in my mind, to keep in order what are the most important things, and I think the size of the economy that the government takes and transfers, and the distortion effects of high marginal rates in order to take those taxes are every bit as important as the deficit effects.
Bill covered deficit effects, and I think in my analysis of the interaction between taxes and spending was sort of my part of that. Certainly, all else being equal, yes, I think it would be better to have lower deficits than higher deficits. But, I don't think that we should so concern ourselves with the size of the deficit that we miss sight of the size of the tax burden in general, and the size and the distortionary effect of marginal rates.
William Frenzel, Brookings Institution
I am concerned by deficits, and there is time to make adjustments, and I don't know how long military emergencies will last. I do recall the Reagan years, when the president said, "I have to get rid of the Evil Empire," and Congress said, "we'd like to help you, Mr. President, as long as you can take care of our constituents with their highway ramps, and their university grants, and tennis courts." And, as a result, we ramped up both ends of the game.
But I do not believe that surpluses and deficits depend only on the revenue side. I believe it calls for some modest discipline on the spending side. And I do note that after 1988, when we cut defense in every single year, and spent the dividend for other things, that Congress doesn't pay quite as much attention to them. I think the tax cuts have to be accomplished when they can be accomplished, because the congressional pattern is pretty clear.
Leonard Burman, Urban Institute
Can I make one comment? This idea of this sort of historical ratio of taxes to GDP, and that's the golden era that we should revert to, it might be okay if we had policies that could lead to sustainable spending at that level and also meet social needs. The one thing that happened when I was DAS [deputy assistant secretary] at Treasury that I was not embarrassed about was this idea that you should save Social Security first. It seemed that there were all these long-running problems, like the AMT, like Social Security, like Medicare, like things Congress of both parties were promising, like prescription drug benefits, that are inevitably going to require either more resources or some other kinds of tax increases. Tax increases to pay for Social Security and Medicare. And to first give the tax cut, and then say, well, these other problems we're going to deal with at some point in the future, seems to be a recipe for disaster.
William Gale, Brookings Institution
I just want to add one comment, too. Bill Frenzel said what sounds to me like a classic Bushism, which was that, yes, we should have a tax cut, but we should have some modest discipline on the spending side, too. If you're trying to close a fiscal gap, and you have modest discipline, that means you're raising taxes and you're lowering spending. And what Bill is saying is, no, we should lower taxes by a lot, and lower spending some. That doesn't get you even in the right direction of closing the fiscal gap. And so, if we're going to have some modest discipline on the spending side, we should have some modest discipline of belt-tightening on the tax cut. But to say we should cut taxes by a lot, and modest discipline on the spending side seems to me to be completely not Orwellian, but at least Bushian sort of logic.
William Frenzel, Brookings Institution
As a long-time Bushian, I must say that for me this wasn't a tax cut at all. It was just taking down the tax proportion to what it used to be. Taxes were running wild, and they were getting spent.
Jodie Allen, U.S. News & World Report
But that's the curious thing about the nineties, is that even while we did have a tax increase, domestic spending, including not just defense, but domestic spending, continued to decline, I believe, to postwar low as a percent of GDP. So, you didn't—
William Gale, Brookings Institution
Spending as a share of GDP in 2000, other than net interest, was its lowest share since 1957.
Eric Engen, American Enterprise Institute
Primarily because of defense.
William Gale, Brookings Institution
Well, all forms of spending were down, discretionary nondefense spending was down over the decade, defense spending was certainly down, even entitlements were down as a share of GDP. And net interest, of course, was down, if you want to include that.
Jodie Allen, U.S. News & World Report
And that is the more remarkable because the biggest entitlement, of course, is Social Security, and as the population grows, especially the aging population, it's supposed to increase. So, it must confuse the models.
Lee Price, Commerce Department
The last page of Bill Gale's paper, figure 3, gives sort of what you've been talking about for the last five minutes. And the notion that the dotted line is—revenues have been averaging for 50 years, 18 percent is the norm. And we should bring down revenues to something like that, and that would be a happy situation is I think puzzling, because if you look at the spending side, the spending side probably for the last 20 years, and we're not going to go back to 1960s kind of spending, we're in the new world: defense, homeland protection, Social Security, Medicare coming up, and that record revenue level of 2000 was not even at the average of the last 20 years' spending. And we can expect more spending.
So I guess my question is, how can you say—surely there were tennis courts and some extra ramps built, but really is it plausible to have spending down to 18 percent given what we know, in the long run we're all dead, but we do have a homeland defense spending plan, we have a defense spending plan. We know there's a demographic shift coming for Social Security and Medicare. Is it plausible to say, well, we really ought to bring revenue down to 18 percent average of 50 years, when the last 20 to 25 years the spending has been above 20 percent, and it's likely to stay above 20 percent for some period of time?
Eric Engen, American Enterprise Institute
I guess, first of all, I did not say that taxes should be held at, say, the 17.9 to 18 percent. I was just putting in context what the tax cuts did in terms of their expected effect on the size of the economy. So, in that sense, I don't think there's necessarily a magic number of 18. Obviously, Bill made it more clear that he believes that we should stay around that average.
Lee Price, Commerce Department
You did imply it was too high.
Eric Engen, American Enterprise Institute
I said it hit a postwar high, and that even with the reductions from the 2001 Tax Act, you were still above the average.
Jodie Allen, U.S. News & World Report
But the GDP is much bigger in real terms, so the same percentage does yield growth in spending.
Eric Engen, American Enterprise Institute
But I do think it raises the question, particularly given that one of the reasons why tax revenues increased a lot was because we had a serious ramp up in the marginal rates. The economic distortion from that were ones that I think are worrisome.
On the other hand, say, for example, we went for something that was more revenue neutral, we lowered marginal rates, and broadened the base, I think that would be a good tax change also. I think where taxes should be, obviously, is not just fit in the tax debate, it's got to fit in the overall budget debate, and society has to decide on how much spending they want, also. But I think the high marginal rates are a problem.
Joe Minarik, House Budget Committee
A question for I guess primarily for Eric. You said that after the tax cuts the projected level of receipts relative to GDP is about 19 percent. In light of the developments of the last few months, do you think that we have any chance of actually attaining that over the next few years?
And, number two, if analysis of the most recent rounds of tax returns were to suggest that the increase in revenues over the late 1990s was largely a technical development driven by the financial market, the buoyancy that perhaps is not going to return, do you believe that we ought to reconsider the tax cut in light of the risks that it has of mounting deficits, debt, interest charges, deficits, debt, interest charges, etc.?
Eric Engen, American Enterprise Institute
I would say on one thing, I think I agree with your supposition that we know from analysis that we do chalk up some of the rise in tax revenues in the late nineties to these technical factors that probably, in all likelihood, were related to the buoyant stock market. I think that's probably true.
Certainly, some unwinding of that probably is what has been happening this year. I'm not privy to the same numbers and, in fact, since I'm not at the Board anymore, the Reserve Board, I don't have as much of the near-term to know exactly kind of how big those declines were this year relative to expectations. So, I don't know how much of those estimates of CBO—CBO certainly has a better idea than I do at this point.
But I find it hard to believe that it would be, say, large enough to push below the average. And I think, though, if there is further erosion in that, what it means is that policymakers are, in particular, going to have to look at the budget process of setting spending even more seriously than they do right now. I think certainly we're all discouraged with the recent developments in that side, and I think right now we're in one of those, I think at a Brookings conference Richard Coven called it spasms of irresponsibility. I think we're on one of those episodes right now. So, I wouldn't necessarily call for a repeal of the tax cut right at this moment, but we have to see.
Van Ooms, Committee for Economic Development:
This is I guess primarily for Bill, although I'd like comments from anyone else. The conventional wisdom on national saving, growth, and budget deficits has always seemed to argue that a major reason for trying to reduce deficits or, in this context, not to have a very large tax cut, would be to provide for the macroeconomic future when we've got lots and lots of baby boomers retiring, and great pressure on Social Security and Medicare.
Now, Bill, your analysis seems to suggest that after all is said and done, with respect to the tax cut, that there really isn't an awful lot in the growth story on a net basis, that the effects effectively are relatively small, which suggests that we are not going to, even if we were to repeal the tax cut, let's say, it's unlikely that we would have growth effects that were large enough to make any significant difference to the future of the macroeconomy in terms of supporting generationally the Social Security and Medicare issue.
So, is it fair to say that your concerns with the tax cut then are really primarily fiscal and distributional; fiscal in the sense of crowding out other types of programs, such as some kinds of funding for Social Security and Medicare that we might otherwise need to do?
William Gale, Brookings Institution
... My concerns for the tax cut are that it actually reduces the size of the future economy, raises interest rates, makes taxes more regressive, increases tax complexity, and is fiscally unsustainable even before the economic downturn and the terrorist attacks in 2001.
With respect to growth, cutting taxes to generate more growth to meet the future fiscal responsibilities is a gamble in the sense that you know you're increasing the debt somewhat. You're hoping to get enough growth out of that to not only make up for that, but to increase the size of the economy enough to fund these other programs. My estimates suggest that if you do cut taxes to generate growth, what you'll get is no net increase in growth, because the public saving effect offsets the rate incentive effect, but you will get an increase in fiscal burdens; remember, because you have cut taxes, you now have more public debt at the end of the period.
So, it's true that repealing the tax cut will help growth, but it's also true that it would reduce the fiscal burden. So, in that it would be a net gain in helping us deal with these long-term problems aside from the political economy of spending issues that Bill and Eric have raised.
The Effect of the 2001 Tax Cut on Low- and Middle-Income Families and Children (Research Report)
Author(s): Leonard E. Burman, Elaine Maag, Jeff Rohaly
This paper analyzes the effects of the 2001 tax cut on different income groups, finding that despite criticism that so much of the benefit goes to the rich, the bill also did much to help low- and middle-income families, increased the child tax credit and made it refundable, simplified the EITC and increased it for some married couples, increased the maximum child care tax credit, created a new 10 percent tax bracket, and raised the standard deduction for married couples, all of which will provide substantial benefit to middle-income families. When fully phased in, the tax cuts will be worth over $1,700 per year in tax savings for a family of four at or near the poverty line, and over $1,000 for a family at twice the poverty level. Families with children do better than those without at almost every income level. The exception is upper-middle income families whose benefits are curtailed or eliminated by the alternative minimum tax. And, not surprisingly, the largest overall tax cuts by far will accrue to those with incomes over $200,000.
Published: April 29, 2002
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The Bush Tax Cut (Policy Brief)
Author(s): William G. Gale, Samara R. Potter
[© Brookings Institution] This policy brief provides an assessment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Its findings suggest that EGTRRA will reduce the size of the future economy, raise interest rates, make taxes more regressive, increase tax complexity, and prove fiscally unsustainable. These conclusions question the wisdom and affordability of the tax cut and suggest that Congress reconsider the legislation, especially in light of the economic downturn and terrorist attacks that have occurred since last summer.
Published: June 05, 2002
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EGTRRA: Which Provisions Spell the Most Relief? (Policy Brief)
Author(s): Leonard E. Burman, Jeff Rohaly , Elaine Maag
This brief describes the Economic Growth and Reconciliation Act of 2001 (EGTRRA) provisions that benefit low-income and middle-income families and children and estimates the effect of the tax cut over the decade. Families with children benefit more than families without children, and families with high incomes benefit more than those with moderate and low incomes.
Published: June 24, 2002
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An Economic Evaluation of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Research Report)
Author(s): William G. Gale, Samara R. Potter
[© Brookings Institution] This paper summarizes and evaluates the Economic Growth and Tax Relief Reconciliation Act. Enacted in 2001, EGTRRA is the biggest tax cut in 20 years, and features income tax rate cuts, new targeted incentives and estate tax repeal. The paper's central conclusions are that EGTRRA will reduce the size of the future economy, raise interest rates, make taxes more regressive, increase tax complexity, and prove fiscally unsustainable.
Published: March 01, 2002
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How Marriage Penalties Change Under the 2001 Tax Bill (Research Report)
Author(s): Adam Carasso, C. Eugene Steuerle
This paper examines how the various provisions of the 2001 tax cut change marriage penalties and subsidies for hypothetical households with two children with incomes below $80,000. It focuses on the additional marriage penalties that heads of household marrying single filers face—the loss of valuable tax benefits for which two single, childless taxpayers who marry would not be eligible. Specifically, the analysis models six pertinent provisions and finds that (1) overall, the tax cut substantially reduces marriage penalties/increases subsidies for most hypothetical households and (2) that the expanded child tax credit delivers the most relief of any provision.
Published: May 30, 2002
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For more tax related analyses, visit www.taxpolicycenter.org.
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