Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, November 23, 1994 TAG: 9411230135
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: NEW RIVER VALLEY
SOURCE: Knight-Ridder/Tribune
DATELINE: WASHINGTON LENGTH: Medium
Both Republicans and Democrats are aiming their tax cuts at families with children, reflecting a longstanding bipartisan consensus that government should do more for the American family.
The House GOP tax cut would provide a $500 per child tax credit for families with incomes up to $200,000, at an estimated cost of $107 billion over five years.
The Clinton administration has not unveiled a plan, but it may opt for a credit limited to families in the $25,000 to $50,000 income range, at a cost of about $40 billion.
Advocates concede a tax cut is not enough to bring back the middle-class heyday of the '50s and '60s, but they argue that tax relief for families still is important, in terms of good social policy and political common sense.
``A tax credit is not going to solve all the nation's family problems,'' said Rob Shapiro of the Progressive Policy Institute, a moderate Democratic think tank supporting a tax cut. ``But there is value in the general proposition that government will not tax the money an average family needs to raise a child.''
For a married couple with two children and an income of $39,000, a $500 tax credit per child has the same effect as being able to deduct almost $6,670.
Observed Arthur Hall of the conservative Tax Foundation: ``There may be bigger economic forces affecting people, but a tax cut is the only prescription you've got to lower one of their costs.''
Yet other economists say the tax-cut medicine bottle should carry a bright red warning sticker: Middle-class tax breaks should not be financed by adding to the deficit.
Bigger deficits could push up interest rates and interfere with the ongoing economic recovery. That would hurt working families by putting a lid on raises, or even costing some jobs.
``The most important goal for the middle class right now should be not to derail the expansion,'' said Frank Levy, an economist at the Massachusetts Institute of Technology. ``A tax cut that short-circuits the recovery would be fool's gold.''
Republicans and Democrats have given assurances that their proposals would be financed.
There's no denying that the American middle class is being squeezed. The Democratic rout in the recent congressional elections and the defeat of President Bush in 1992 both reflect the anger of the middle class.
But are federal taxes the source of middle-class troubles? Or was the problem brought on by larger factors in the economy - such as the loss of solid factory jobs and the shift to service industries? Here's a look at what the numbers say:
The Congressional Budget Office says the share of middle-class incomes taken by federal taxes has remained fairly steady since the late '70s, hovering between 19 and 20 percent.
Wages tell a very different story. Adjusting for inflation, average hourly earnings have fallen since the '70s. In 1993, the average wage was $10.83 an hour, compared to $12.82 two decades before. (Both figures are in 1993 dollars.) Hourly wages actually peaked in 1973 and began falling the following year, after the first big oil price increase.
Though many families responded to falling wages by sending a second worker into the labor force, family incomes are not much higher than in the '70s.
From 1967 to 1973, the median family income rose from $31,579 to $36,893, a gain of $5,314. In 1993, median family income stood at $36,959, a net gain of $66 after 20 years.
by CNB