Will You Benefit From the Tax Cuts?

May 22, 2003 -- The $350 billion tax-cut package heading through Congress may be "good for American workers" and "good for American families," as President Bush says, but a closer look at the cut shows for most taxpayers, all it's good for is $100 or less.

The big winners of the tax package, which will be the third-largest tax cut in history, are rich people and families with children.

People like Connie and John Moran are eager for the tax cut to kick in. They are both teachers with a joint income of between $50,000 and $70,000 and they have four children under the age of 17.

Because they are married, the couple will get a tax cut of $233. They will also get a tax credit of $400 for each child and a $100 tax cut on their income.

"I'm pleased with the amount," said Connie.

"We weren't really counting on it," said John of the tax break. "It's nice."

But married couples with minor children like the Morans make up only one-fifth of taxpayers, say experts. Some lament that other taxpayers will be left out.

"You are talking about single people, you are talking about single moms with children, you are talking about some elderly people who don't have dividends and capital-gains income," said Peter Orszag, a research fellow in economics at the Brookings Institution, a Washington-based think tank.

The Rich Get Richer

The other tax-cut winners, the wealthy, also make up a very small group. The top 5 percent of taxpayers would get more than half of the benefits from the tax cut.

People who make between $100,000 and $200,000 would get a tax cut of more than $2,500 on their income alone. Those who make between $500,000 and $1 million would get an average income tax cut of $17,324.

"The people I would say do the best are the people at the upper levels," said Mark Garay, deputy director of tax policy for Deloitte & Touche in Washington.

Because wealthy taxpayers are heavily invested, they also stand to gain from a reduction in taxes on dividends paid to stockholders and a reduction in taxes paid on capital gains when their investments are sold.

Stimulus Needed, But for Whom?

Despite heavy criticism of the tax cuts, even critics say Washington needed to do something to help the economy, and given its fragile state at the moment, many concede the tax cut is well-timed.

The president hopes that the tax cut will boost the economy by putting money in people's pockets, which they will then go out and spend and keep the country out of a recession — a similar philosophy to the $300 to $600 tax rebate checks taxpayers got two years ago.

"This is at the very least important insurance to facilitate stronger growth in the second half of the year at a time when there's so much uncertainty about the future course of the economy," said Laurence Meyer, a former Federal Reserve governor and now a scholar at the Center for Strategic and International Studies.

Other economists see far less immediate benefit from the tax cut on stock dividends and other capital gains.

Billionaire investor Warren Buffett figures this provision could personally save him $310 million.

"If you want to stimulate the economy, you want to get it into the hands of the people who would spend it," Buffett told ABCNEWS' Nightline. "If you give $1,000 to poor families, they will spend it. There's no net gain in giving it to me in terms of stimulating the economy."

What About Jobs?

The president has also argued that the bigger the tax cut, the more jobs it will create. But even economists who support the tax cut say its impact on job creation is indirect at best.

"It's a misnomer to call this tax package a jobs package," said Mark Zandi, economist at economic research firm economy.com in West Chester, Pa. "What it will do though is hopefully create a better environment for businesses to begin growing and expanding and ultimately they will begin to hire jobs but that'll take some time in coming."

The final question, of course, is what will the cost of this tax cut do to the deficit, and what will that do to the economy? That depends on whether these tax cuts are phased out a few years from now, as planned. If Congress does not restore the taxes it is lowering now, economists say the deficit could balloon and become a big problem for the economy.

For their part, the Morans also wonder how long their new tax benefits will last.

And contrary to what the government hopes taxpayers will do with their newfound windfall, the Morans plan to save their money.

"I want to be sure we have that nest egg in order to send all four of our children to college," said John Moran.

ABCNEWS' Linda Douglass and Betsy Stark contributed to this report.