THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, August 7, 1995 TAG: 9508040028
SECTION: FRONT PAGE: A6 EDITION: FINAL
TYPE: Another View
SOURCE: By ROBERT S. McINTYRE
LENGTH: Medium: 80 lines
James K. Glassman (``The rich already pay plenty in taxes,'' Another View, July 24) thinks he has discovered what's wrong with our nation's tax system: ``The poor, the lower-middle class and even the middle-middle class pay only a tiny proportion of federal income taxes.'' To rectify this perceived problem, he offers a simple solution: big tax increases on low- and middle-income families, and big tax cuts for the rich.
That, of course, would be the result from Rep. Dick Armey's ``flat tax,'' which Glassman endorses. Armey's plan entails giant new loopholes for the wealthy - as Glassman notes, ``Armey's plan exempts all investment income and capital gains from taxation at the individual level'' - and cuts the top tax rate about in half. Thus the rich would pay a lower rate on less of their incomes. No one can doubt that this double bonanza would mean a huge tax reduction for the rich, or, by simple arithmetic, that middle- and low-income families would have to pay a lot more to make up the difference.
So what is Glassman's case for such a gigantic tax shift? First of all, he finds the progressivity of the current income tax ``astounding.'' The top 1 percent, he complains, pays 26 percent of total federal income taxes while garnering a mere 13 percent of the total income. I'm not sure why that seems offensive, but in any event the figures are considerably less stark when the full range of taxes is taken into account.
The top 1 percent's share of all federal taxes - income, Social Security, excise taxes, etc. - is only 18 percent. Its share of federal, state and local taxes combined is less than 16 percent, only slightly more than its 13 percent share of total income. The result of this small sacrifice on the part of the wealthy is that the bottom 40 percent of the population, with 13 percent of total income, pays just under 10 percent of the total taxes. (Families in the middle ranges pay tax shares a bit below their income shares; those in the upper middle to near rich pay a slightly higher share.)
Were progressivity in the federal income tax abandoned, as Glassman and Armey propose, then the rich's share of taxes would be far less than their share of total income, leaving middle- and lower-income people to pay a considerably greater share.
That's only fair, maintains Glassman, since the rich don't get much in the way of benefits from government anyway.
The fact is, though, that the rich benefit greatly from government. No one's fate hinges more on the quality of public education, for example, than that of employers (generally a very well-off group). Likewise, businesses need good roads both to transport their goods and to get their workers to the job. National defense and police defend not only our lives and liberty but also our property - an item of which the wealthy enjoy the lion's share.
More fundamentally, we have organized our society so that wide differences in wealth and income are inevitable. Within reason, that may be a good overall economic strategy. But it does not imply that we can't take at least modest steps, through the tax code among other means, to mitigate the most egregious disparities. The fact that the rich have gotten much richer over the past two decades, while incomes in the middle and lower ranges have stagnated or fallen, would seem to indicate a need for more progressivity, not less.
To be sure, as Glassman points out, hard work often plays a major role in huge success. But so do accidents of birth, inheritance and countless other kinds of just plain good luck. For every self-made millionaire, there are many, many others who work very hard but aren't so lucky. Why should we raise their taxes to reduce the obligations of the most fortunate?
Trickle-down, answers Glassman: ``Armey and other Republicans are trying to address a serious problem - the lack of savings and investment in this country.'' Glassman seems to have forgotten that this approach was tried - and failed - in the late '70s and early '80s. Tax changes in those years showered tax breaks on corporations and the rich in the name of enhancing investment. But while the tax ``incentives'' sharply reduced the progressivity of the federal tax system, they did not improve the savings or investment rate.
Instead, we saw an orgy of tax sheltering and an explosion in government borrowing that we are still paying for. Eventually, even Ronald Reagan grew weary of his ``supply-side revolution'' and helped undo part of its damage with the Tax Reform Act of 1986. MEMO: Mr. McIntyre is director of Citizens for Tax Justice.
by CNB