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1 Nick Kasprak, The Potential Impact of Expiring Tax Cuts on Low-Income Taxpayers 1 (2010)

handle is hein.taxfoundation/ffcfaxz0001 and id is 1 raw text is: TA X FOUND ON October 6, 2010 No. 250 The Potential Impact of Expiring Tax Cuts on Low-Income Taxpayers By Nicholas Kasprak Introduction On December 31, 2010, a decade's worth of tax code changes will expire. Most pundits have been predicting for months that Congress and the President would only permit the expiration of tax cuts for high-income people, but if election year politics create gridlock, the Internal Revenue Service will be ready to roll the clock back ten years. Most of the changes will kick in because of the sunset provisions of the 2001 and 2003 laws, known popularly as the Bush tax cuts. But other, more recently enacted tax cuts - temporary tax provisions passed in early 2009 as part of the stimulus bill - are scheduled to expire at the same time. Both sets of changes would have substantial effects on low- income taxpayers. While many people view the Bush tax cuts as targeted towards the wealthy, taxpayers across the entire income spectrum received a significant tax cut. It's certainly true that wealthier taxpayers received a bigger cut as measured in dollars because they were paying higher taxes to begin with. However, a better measure of tax cuts is the percentage change in after-tax income, which reflects tangible lifestyle benefits and is intuitively understood. Congress is unusually susceptible to gridlock, so the threat of automatic and full expiration of all these cuts is quite real. With that in mind, it is worth considering in detail what effect such a scenario would have on low-income taxpayers. Comparing changes in after-tax income shows that the benefits of the tax cuts were distributed much more equally along the income spectrum because the Bush tax cuts included a number of provisions targeted specifically at low-income people. Moreover, low-income taxpayers also benefitted from some temporary stimulus measures enacted in 2009 that are also set to expire at the end of this year: an expansion of the earned income tax credit (EITC) and the child tax credit, as well as expanded credits for college education. The various tax proposals made by the parties in Washington all extend most of these low-income tax cuts. However, the current Congress has shown itself to be unusually susceptible to gridlock. No vote Nicholas Kasprak is a policy analyst and programmer at the Tax Foundation. Vl I IN INNIMF .... 4111,11 INN oIlk