Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 17, 1994 TAG: 9404190010
SECTION: HORIZON PAGE: D-1 EDITION: METRO
SOURCE: By DAVID E. ROSENBAUM THE NEW YORK TIMES
DATELINE: WASHINGTON LENGTH: Long
But as a proportion of the national economy, or of people's total income, or of any other yardstick of what Americans earn and are worth, the amount that federal, state and local governments collect each year in taxes has hardly changed in 25 years.
Taxes amounted to 27.8 percent of gross domestic product in 1991, the last year for which statistics are complete. Since 1969, the figure has never risen above 28.5 percent or fallen below 26.7.
How can this be? How can Americans be so sure their taxes are rising when the data show that - for the country as a whole - they are not? The answer is that most taxpayers really do owe more each year.
Think of an escalator going up in a building. People get on when they reach adulthood and begin owing taxes. Because of inflation, their incomes tend to go up. So do prices. So even if they are paying the same percentage of earnings in taxes, their income tax bills rise year after year. So does what they pay in sales and property taxes.
In addition, many people become more affluent as they grow older. The Census Bureau reports that in 1992 the median income for a household in which the adults were age 25 to 34 was $31,434. The median for those a decade older was $40,090. Sometimes, this pushes taxpayers into higher tax brackets and they owe, say, 28 percent on part of their income instead of 15 percent on all of it.
Eventually, people step off the escalator and they retire, if they are lucky. But others are always getting on. So the number of people on the escalator does not change much. Neither does what governments collect. But each individual is riding up.
Another reason for the perception of rising taxes is that Republicans discovered that talking about cutting taxes could pay political dividends. Taxes did not really fall during the Reagan-Bush years.
Lower income taxes were offset by higher Social Security and Medicare taxes. But that has not stopped an anti-tax campaign that Republicans hope to ride into the White House and into control of Congress.
They are often egged on by lobbyists. Last week, the National Taxpayers Union held a news conference advertised as a look at ``who voted to raise your taxes'' last year. The truth is that, for most people, no one in Congress voted to raise their taxes last year, at least not by very much.
Over the opposition of every Republican, Congress did vote in its deficit-reduction legislation to raise taxes by nearly $250 billion over five years. Three quarters of the amount will come from the richest 1 percent of Americans, the 1.2 million with incomes above about $200,000 a year. Much of the rest will come from increasing the income tax that about 2 million middle- and upper-income retirees pay on their Social Security.
The law did not raise the income taxes of 97 percent of Americans. The only consequential federal tax increase faced by most people is a 4.3-cents-a-gallon addition to gasoline taxes. But gasoline prices at the pump have been falling, so the higher tax has not been evident.
At the state level, 22 states raised taxes by more than 1 percent last year, but only five voted increases of more than 5 percent.
More changes have been made in tax policy in recent years than ever before. Ignoring economists and executives who counseled that the wisest tax code is a stable and predictable one, Congress changed the federal tax laws in big ways in 1981, 1982, 1983, 1984, 1986, 1988, 1989, 1990 and 1993.
The federal income tax rate on the wealthiest taxpayers was cut from 70 percent to 50 percent to 28 percent. Then it was raised to 31 percent, and it went up again to 36 percent last year.
Tax breaks to encourage business investment and personal savings were widened, then repealed. A surtax on the elderly to pay the cost of catastrophic illnesses was approved in 1987 and retracted the next year. Social Security, Medicare and gasoline taxes went up. Corporate taxes fell.
At the state and local level, tax collections peaked in 1973 and then dropped because of recessions and a tax revolt in California and many other states. This bottomed out in 1982, and taxes have been rising since. The trend may end this year with deep tax cuts in the works in New Jersey and New Mexico and smaller ones elsewhere.
Hundreds of billions of dollars of tax liability has been shuffled among individuals and among companies. The constant changes forced some people to change how they saved and spent, and companies had to keep altering their business practices.
The tax law encouraged investment in commercial real estate in the early 1980s. After a while, the carrot was withdrawn, and the real estate market collapsed. One year savings accounts were tax free; the next year they were not. Deductions for sales taxes and in most cases for medical expenses and casualty losses were scrapped.
At the federal level, the biggest changes over the last decade and a half have been felt by the very rich and the very poor. The wealthiest 1 percent had their taxes cut by 15 percent from 1977 to 1985. Since then, much of that has been restored. The average federal income tax increase among these people just because of the 1993 law is about $25,000.
In the 1980s, the taxes owed by the poor went up because of increases in Social Security, Medicare, tobacco and gasoline taxes. That was more than reversed by the 1990 and 1993 tax laws.
This year, a family with two children and earnings of less than $12,570 can get a federal rebate of nearly $2,000. Locally, the biggest recent tax increase has been at the county level - 69 percent from 1985 to 1991. A main reason: more jails.
The top tax news in the states this year has been in Michigan, where the property tax was abandoned as a way to pay for schools. It was replaced by a higher sales tax and an additional 75-cents-a-pack tax on cigarettes.
In Washington, politicians hope to avoid a tax bill this year. But President Clinton has said he still hopes for a tax cut for the middle class, although hardly anyone believes he will propose one. And whatever changes are made in the nation's health-care system, they will be paid for in part by a big new federal tax on cigarettes.
By the end of the 1990s, the government will face rapidly rising deficits. Many authorities think the solution is a new tax - say, a national sales tax, or some tax not on what people earn but on what they consume. Then, maybe, taxes really will be higher.
by CNB