EXAMINING THE TAX CUTS: Inquiry in a Math or Social Studies Class

By Alan Shapiro

 
To the Teacher:
 
President Bush likes to talk about the series of tax cuts his administration has made in the past few years. The controversial cuts are also a favorite topic of Bush's opponents.
 
The following mini-historical overview of income tax laws and the accompanying chart provide the basis for student inquiry into who benefited most from the Bush tax cuts. Although we omit certain complicating ingredientsósuch as the alternative minimum tax and rates on investments and dividendsóthe basic facts we provide are well documented.
 
The questions that follow test students' ability to read a statistical chart and draw conclusions from it. The writing assignment asks students to marshal an argument. We also provide suggestions for students to take action on the issue.
 
 

Reading

Bush tax cuts: Who benefits?

In the United States' early years, most of the revenues for financing state governments came from excise taxes, tariffs, and customs duties. The Constitution declared that "The Congress shall have power to lay and collect taxes." But it wasn't until the Civil War that Congress first placed a tax on personal incomesóa 3 percent tax on incomes up to $10,000, 5 percent on higher incomes. This legislation was abolished in 1872.
 
After long arguments about the constitutionality of an income tax, the 16th amendment to the Constitution was finally declared in force in 1913. It states: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derivedÖ" The income tax then passed by Congress embodied a "progressive" principle. That is, those earning the most should pay the most, and the more one earns the more one should pay. The new tax was 1 percent on income of $3,000, rising to 7 percent for those with incomes over $500,000.
 
In the years since then, rates have risen and fallen. The passage of Social Security in 1935 and Medicare in 1965 has meant additional taxes on incomes to pay for these programs.
 
Beginning in 2001 the Bush administration aggressively pushed a series of tax cuts through Congress. The cuts have stimulated questions and arguments about who benefits more from them and how "progressive" our income tax laws now are.
 
For an inquiry into these subjects, study the chart* below, then answer the questions that follow.
 

Bottom 80% of Taxpayers
("Taxpayers" refers to both single and joint filers.)
Percentile:
Bottom 20%
20-40%
40-60%
60-80%
Income in 2005
$0-$13,478
$13,478-$25,847
$25,847-$44,451
$44,451-$79,562
# of taxpayers
28 million
30 million
29 million
29 million
Share of taxpayers
19.5%
20.6%
19.9%
19.9%
Share of tax cut over 15 years
0.3%
5.3%
9.5%
16.4%
Average yearly tax savings
$23
$342
$618
$1,063

 

Percentage of income paid in taxes (income tax, Social Security, and Medicare) in 2004 for earners under $100,000

Income:
Less than $30,000
$30,000-$50,000
$50,000-$75,000
$75,000 - $100,000
% of income paid in taxes:
6.7%
14.5%
17.4%
18.9%
 
 

Top 20% of Taxpayers

Percentile:
80-90%
90-95%
95-99%
99-99.5%
99.5-99.9%
Top 0.1%
Top 400 taxpayers
Income in 2005
$79,562-$117,001
$117,001-$162,351
$162,351-$383,407
$383,407-$581,019
$581,019-$1,589,608
$1,589,608 or more
$87 million or more
# of taxpayers
14 million
7.2 million
5.8 million
723,000
578,000
145,000
400
Share of taxpayers
10%
5%
4%
.5%
.4%
.1%
.00003%
Share of tax cut over 15 years
15.5%
9.8%
12.5%
5.4%
10.1%
15.2%
data not available
Average yearly tax savings
$2,202
$2,101
$4,051
$14,107
$32,767
$195,762
$8.3 million

 

Percentage of income paid in taxes (income tax, Social Security, and Medicare) in 2004 for earners over $100,000

Income: $100,00-$200,000 $200,000-$500,00
$500,000- 1 million
$1 million - $10 million
More than $10 million
Top 400 taxpayers
% of income paid in taxes:
20.6%
21.6%
21.6%
22.3%
20.1%
17.5%
 
 
*The chart is excerpted from the New York Times, 6/5/05. The data in it come from four sources: government tax return records; the Federal Reserve's Consumer Finance Survey; a computer model of the Tax Policy Center; and an Internal Revenue Service report. In an article accompanying the chart, The Times states: "The Times relied on a computer model based on the Treasury's. Experts at organizations representing a range of views, including the Heritage Foundation, the Cato Institute and Citizens for Tax Justice, reviewed the projection and said they were reasonable, and the Treasury Department said through a spokesman that the model was reliable."

 

Questions

1. Over the next 15 years, what total percentage of the tax cut goes to taxpayers
 
a. in the bottom 80%?
 
b. in the top 20%?
 
c. in the bottom 60%?
 
d. in the top 1%?
 
2. How many taxpayers are:
 
a. in the bottom 80%?
 
b. in the top 20%?
 
c. in the bottom 60%?
 
d. in the top 1%?
 
3. What is the difference in the percentage of their income each of the following groups paid in taxes in 2004?
 
a. Percentage difference between those earning $50,000 to $75,000 and those earning $87 million or more:
 
b. Percentage difference between those earning $75,000 to $100,000 and those earning $87 million or more:
 
4. What percentage of the tax cuts will go to:
 
a. taxpayers in the bottom 80%?
 
b. taxpayers in the top 20%?
 
c. taxpayers in the top 10%?
 
d. taxpayers in the top 5%?
 
e. taxpayers in the top 1%?
 

Writing Assignment

Commenting in the third presidential debate with John Kerry on a series of income tax cuts promoted by his administration, President Bush declared, "Most of the tax cuts went to low- and middle-income Americans. And now the tax code is more fair." (10/14/04)
 
Write a letter to President Bush in which you respond to his statement in a discussion supported with specific data from The New York Times chart.
 
 

This lesson was written for TeachableMoment.Org, a project of Morningside Center for Teaching Social Responsibility. We welcome your comments. Please email them to: lmcclure@morningsidecenter.org.