Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, April 14, 1995 TAG: 9504140048
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
People who earned $100,000 or more owed the government an additional $31 billion compared with 1992, according to an Associated Press computer-assisted analysis of Internal Revenue Service data. Everyone else together owed about $3 billion more.
The tax-law revisions were aimed specifically at reducing the deficit by tapping people with big incomes. When President Clinton proposed raising taxes on high incomes, experts expected the affluent to create shelters and loopholes to blunt the impact.
It didn't happen.
The law took effect in August 1993, but the new rules were applied retroactively to January. That took some tax planners by surprise.
``We did not see a new surge of tax shelters,'' said Robert McIntyre of Citizens for Tax Justice, a Washington advocacy group. ``It's hard to do, and it takes time.''
The bill added two new tax brackets - 36 percent for income beginning at $115,000, and 39.6 percent beginning at $250,000 - but generally left other tax rates alone.
While tax liability declined for people in many brackets, for those making more than $100,000 it amounted to 25.5 percent of their income before deductions, up from 23 percent the previous year. The law allowed them to spread actual payment of their taxes over several years.
Tax returns reporting $100,000 or more in income accounted for just 4 percent of the 114.6 million returns filed for 1993. But they amounted to 24 percent of the $3.7 trillion in individual income reported.
The affluent found few places where they could successfully shelter their money, said economist Michael Schuyler of the Institute for Research on the Economics of Taxation. Municipal bonds and other tax-free investments pay relatively low returns. Investments that pay well are taxed.
A 1986 law eliminated many tax shelters formerly favored by the rich, such as investments in apartment buildings or small corporations that provided a tax write-off, and restricted the amount of itemized deductions high-income taxpayers can claim.
``I would have expected (shelters),'' ``On the other hand, the thing came on pretty suddenly - it was made retroactive, which many people didn't expect - so a lot of people may have allowed income to come in in 1993 thinking that they'd have until 1994 to make the changes in their work habits and the forms in which they took income.''
The average tax bill for the affluent, those with incomes over $100,000, rose by $3,500 to $56,000. Their share of all personal income taxes rose from 39 percent to 43 percent.
Some middle-class households, with income in the $50,000 to $100,000 range, also paid more in taxes. But the percentage of their income going to taxes declined.
``I personally feel an incredible pinch,'' said tax-planner Victoria Trumbower. A mother of three, she is a manager with the accounting firm Arthur Andersen in Washington. She and her husband paid taxes on incomes exceeding $115,000.
``This has put me into a huge tax bracket,'' Trumbower said. ``It has affected my spending. I would have put some money into the American economy if it wasn't for the $8,000 I owe.''
She advises her clients to consider deferring compensation through stock options and the like, but acknowledges there's little people can do ahead of time to escape the bite. ``What we try to do is make sure nobody is doing something clearly stupid,'' she said.
The wealthy might take solace in the new Republican majorities in Congress. A potpourri of tax proposals are on the table, including a flat tax, a capital gains tax cut and a per-child tax credit.
In all, Americans owed $533.1 billion in taxes in 1993, up $34 billion from the year before.
Clinton had argued that upper-income Americans had paid less than their share of taxes in the years when Republican presidents Reagan and Bush sat in the White House.
He said the law asked ``the well-off to pay their fair share, requiring that at least 80 percent of the new tax burden fall on those making more than $200,000 a year, and very little on any other Americans, not to punish the successful, but simply to ask something of the very people whose incomes went up most and whose taxes went down during the 1980s.''
The tax increases, while aimed at the wealthy, made no distinction between taxpayers living in high-cost and low-cost areas. Also, the bill didn't differentiate between single-income and dual-income households.
``They have very substantial incomes,'' said Clint Stretch of the accounting firm Deloitte & Touche. ``I think most clients aren't particularly happy to be paying more, but for most of them it's not a catastrophe.''
by CNB