Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, July 17, 1990 TAG: 9007170316
SECTION: EDITORIAL PAGE: A-6 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
Among the bad is a proposed trade-off that would combine an increase in higher-bracket income tax rates to 33 percent (from 28 percent at present) with a lowering of tax rates on capital gains. President Bush wants the latter; Senate majority leader George Mitchell says the president can have it only in conjunction with the former.
But such a deal would place whatever remains of tax reform in jeopardy. The 1986 reform reduced rates and closed loopholes simultaneously, with the result that the richest Americans' share of the tax burden wasn't supposed to be significantly altered. Yet, over the past decade, the federal tax structure has become more regressive, and income inequality has sharply increased.
Raising the income-tax rate is in itself a reasonable idea; it would restore lost progressivity as well as revenue. But it's not worth doing if it merely reinvigorates the search, and lobbying, for loopholes and tax shelters. Backtracking on tax reform could be dangerous.
In particular, raising the top-bracket rate is not worthwhile if the price is a break on capital gains. The evidence suggests that reintroducing two different classes of income by lowering the capital-gains tax rate would spur not so much jobs and investment as it would efforts to convert ordinary income into capital gains.
Among the most attractive of the trial balloons hovering over the Capitol are ideas floated just about every year: increases in the gasoline tax and in so-called sin taxes.
Americans now spend about 35 cents (adjusted for inflation) less per gallon of gas than they did in 1950. An increase in the current 9.1-cents-per-gallon federal tax would help spur development of fuel-efficient cars, and would make mass transit and the development of electric cars more attractive.
It would encourage conservation, helpful in itself and for the trade balance and national security. (Oil imports now account for nearly half U.S. consumption. That's dangerous.) With more fuel conservation, air pollution and costs of abatement would diminish. And a higher gas tax would cut the deficit nicely. An increase of 5 cents per gallon would raise $5 billion. A 25-cent increase would bring in $25 billion. A 50-cent increase would be best.
Energy-producing states strenuously object, of course. But consider that roughly 60 percent of the costs of the savings-and-loan bailout are for institutions in Texas alone. The bailout is a major reason why taxes are going up. It represents an enormous transfer of wealth from conservative places like Virginia to states where S&L greed, folly and criminality ran rampant. A higher gas tax isn't unfair.
Raising sin taxes also is a good idea. Smoking causes cancer and adds to the nation's health-care costs. Doubling the current 16-cents-a-pack federal tax would help discourage the habit, decrease health costs - and raise $2.8 billion for the Treasury.
Alcohol, too, exacts a huge cost in the nation. An increase to 25 cents per ounce on spirits, wine and beer would raise $7.2 billion and keep these excise taxes tracking closer to inflation.
Any number of other tax ideas should be considered, among them a European-style value-added or consumption tax. But no addition to the tax burden is warranted without equal effort being made to cut spending.
Not much time is left to come up with a budget package. On Monday, the Bush administration boosted its estimate of the 1991 deficit to $169 billion - two-thirds higher than its forecast just six months ago. And that doesn't even include the cost of the S&L bailout. This deficit is serious. The response should be equally so.
by CNB