
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, November 30, 1994                   TAG: 9412070066
SECTION: BUSINESS                    PAGE: B8   EDITION: METRO 
SOURCE: ASSOCIATED PRESS
DATELINE: NEW YORK                                 LENGTH: Medium

LESS FUN? MORE TAXES!

THE BITE seems bigger all the time, we all know. Now a study confirms it, but that's not the bad news. It also says that if the government had contained its raging lust for your dollars a long time ago, you'd still be enjoying all the services you have today. But you might not feel so poor.

It may be as neat an explanation as you'll find for the angry mood in recent elections: Families in 1994 spent 40.1 percent of income on government but 4.7 percent on recreation.

While that in itself might be enough to disturb hard-working, two-income married couples - they make up the most common category of American families - some of the other percentages also would rile them.

To wit: Government's share of their income was more than four times what they spent on food (9.6 percent) - more even than the total spent on food, clothing (4), shelter (15.6), and medical care (10.4) combined.

But take heart. The Tax Foundation, which compiled these figures, feels strongly enough at this point to say that the inflation-adjusted, after-tax median family income rose $567 to $34,728 in 1994.

Such a rise may seem routine for those Americans who still think times get better and better, even when they don't. But it's encouraging when matched against 1993, when after-tax income actually fell.

Such evidence offers at least a partial explanation of the great American mystery of where the paycheck goes. Apparently, it goes to old Sam, America's indigent uncle, and his relations in state and local government.

That trio now takes in taxes an amount equivalent to 40 percent of the gross national product, the country's total output of goods and services produced by individuals and their institutions, primarily business.

Going back to the early days of the republic the trio of federal, state and local tax collections amounted to just 5 percent or so of output. Until World War I, the percentage remained under 10 percent.

Prof. Gerald Scully of the University of Texas at Dallas, who researched these figures for the National Center for Policy Analysis, dates the 20 percent level to the onset of World War II, and the 30 percent level to 1969.

The stunning conclusion of Scully's just-released study is that government could have provided its services at much lower rates of taxation, leaving the difference in household bank accounts.

``The ideal tax rate is 23 percent,'' he said, adding that if taxes had been held to that rate for the past 45 years, Americans could have had twice as much income and the same government services.

He maintains that when total taxes rise above 23 percent of gross national product, they become a drag on the economy, lowering the incentive to work and eroding productivity.

Scully estimates that if taxes had averaged 23 percent from 1949 to 1989, the economic growth rate would have been 5.56 percent instead of its actual 3.5 percent.

At the higher growth rate, real gross national product would have been $13.6 trillion by 1989 instead of $6.2 trillion. As a result, he says, the average family would have had twice as much real income today and an additional $100,000 in savings.

by CNB