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ISSUES > Taxes
Methodology Note:
The above calculations are approximations because they are based on national averages and do not include the varying effects state and local taxes can have on federal after-tax income. The inflation and growth rates used for current law calculations are those forecasted for the U.S. by the Congressional Budget Office (CBO) in August 2002 (see Congressional Budget Office, "The Budget and Economic Outlook: An Update," August 2002, at http://www.cbo.gov/ showdoc.cfm?index=3735&sequence=0). The inflation and growth rates used for the President's proposal are those forecasted in The Heritage Foundation's analysis of the President's proposal. The growth rates used are the geometric means of the current law and forecasted wage and salary per worker growth rates, 3.77% and 4.12% respectively, from 2003 to 2007 for the U.S. After tax income is defined as adjusted gross income (AGI) less personal federal income tax after refundable credits. The personal federal income tax after refundable credits was calculated using Heritage's Individual Income Tax Model.
The personal federal income tax after refundable credits includes the regular federal income tax and the alternative minimum tax (AMT), the earned income tax credit refund, the supplemental child tax credit and the refundable child tax credit. The components of President Bush's Proposal modeled include the acceleration of all marginal tax rate cuts passed into law under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the acceleration of marriage penalty relief, the acceleration of the child tax credit increase, the acceleration of expanding the 10% tax bracket, removing excludable dividends from taxable income, and temporarily increasing the AMT exemption. President Bush's plan reduces the marriage penalty by increasing the married joint standard deduction and modifies the 15 percent tax-bracket for married-joint filers to twice the corresponding amounts for single filers in 2003.
All income is assumed to be from wages. Taxpayers are assumed to use the standard deduction at income levels below $53,000. Tax returns at income levels above $53,000 are assumed to have itemized deductions equal to the national average of approximately 19% of AGI. Heritage analysts estimated median AGI by state from IRS data, tax year 2000, and adjusted the median for inflation to 2003. Median AGI for married joint filers is the median for all married filers, irrespective of number of children. The income in the category "With Bush Tax Plan and Additional Economic Growth" is the sum of the additional after tax income from the Bush proposal versus EGTRRA, assuming income grows at the current law growth rates, and the additional after tax income under the Bush proposal tax rates assuming higher wage growth. The income in the category "Under Current Law and Current Economic Growth" is the current law after tax income assuming that wages grow at the current law forecasted rate of growth. All figures are in 2003 dollars. |
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