Congress voted to extend so-called "middle-class" tax reductions last week, and chose not to offset any of the cost of the $146 billion measure. In addition, the bill also includes $13 billion in tax cuts for businesses. When factoring in the additional interest costs, the bill will increase the deficit by over $200 billion.

Despite the "middle-class" label, the tax cuts still benefit upper income individuals more than the middle class. The Center on Budget and Policy Priorities estimates that the bill means a typical family would see a tax benefit of just $162 in 2005. Those in the top 20% of income earners would, on average, see a much larger tax benefit of $1,317, and those with incomes between $200,000 and $500,000 will receive an average of $2,390.

Since the costs are not offset, these changes must eventually be paid for, and most of the population will likely come up losers -- see "The Ultimate Burden of the Tax Cuts" by William G. Gale, Peter R. Orszag, and Isaac Shapiro for more details.

Much of the cost of the bill could have been paid for with revenue increases that are part of the FSC/ETI bill now under consideration. Rather than choosing to use increased revenue from corporations to pay for the income tax measures, some in congress and the Bush administration are instead likely to opt to reduce corporate taxation by approximately $50 billion. For more on this matter, see "Large Corporations May Receive More Tax Breaks" in this issue.