Share this article

print logo

FEDERAL BUDGET SUMMIT WILL SOAK MIDDLE-INCOME TAXPAYERS AGAIN

While the president and key congressional leaders huddle behind closed doors in a budget summit meeting, the American voter should get ready for the inevitable.

A tax increase is coming. The federal deficit has grown too large and too dangerous for our national leaders to finesse any longer.

But this is an election year. Republicans would like nothing better than to wait until after the November election now that the president has broken his "no new taxes" pledge. Ditto the Democrats, who can't shake the Big Taxer label that Ronald Reagan pinned on them.

Middle-class American voters must not let a post-election, lame-duck session of Congress force those of us who never got a dime from the so-called "across-the-board tax cuts" foot the trillion-dollar bill for the failure of the supply-side experiment.

Taxes and the budget deficit must be made key issues this election year. And the best way to choose candidates for the House of Representatives is to see which ones tell the truth about where the deficit came from and what ought to be done about it.

Recent studies by Citizens for Tax Justice show that a decade of tax cuts that went overwhelmingly to the richest one percent of Americans have added almost $1 trillion to the national debt so far. Meanwhile, almost everybody else -- fully 90 percent of us -- is actually paying higher federal taxes.

The richest million or so families in this country paid an effective federal tax rate of 35 percent in 1977, the year before the supply-side tax program first wen into effect. That same group paid an effective federal tax rate of just under 28 percent in 1989.

But the decline in the share of income that the richest one percent pay in taxes is even more stark when you consider how their incomes have ballooned.:

Between 1977 and 1990, the average, inflation-adjusted incomes of the richest one percent more than doubled. This group used to get 8.7 percent of all the nation's income; now it takes in 13.2 percent;

Meanwhile, middle-class families' inflation-adjusted incomes have been stagnant. The median-income family will make an average of $30,900 in 1990; in real terms, that's 7 percent less than that family had in 1977.

Were the richest one percent to pay taxes on their 1990 incomes at 1977 rates, their effective tax rate would be 43 percent -- fully 15 percentage points higher than now.

Today, the average income of the top million families is around $550,000. Compared to 1977, members of that elite club are paying an average of $82,000 apiece less than they would have had 1977's tax system's progressivity remained in place. In 1990, tax breaks for the richest one percent will be worth more than $84.4 billion. Add to that the $73 billion in interest that will be paid out on the $860 billion already borrowed to finance previous years' tax breaks for the top one percent, and you have a figure -- $157-plus billion -- that approximates this year's federal budget deficit.

For the rest of us, steep hikes in the Social Security payroll tax obliterated the thin sliver of income-tax relief that the supply-siders meted out. The result: nine-tenths of us are paying higher effective rates than we would have if the supply-siders hadn't undermined tax progressivity.

This election year, the defenders of the supply-side tax giveaways to the rich will say that those focused tax breaks were a good thing, and that the deficit is due entirely to waste, fraud and abuse. And with the HUD scandal and the Savings and Loan debacle in the headlines, they'll find a ready audience for their anti-tax, anti-government rhetoric. But remember: we haven't gotten the bills yet for these multi-billion-dollar ripoffs.

Other politicians, fearful of their wealthy campaign contributors, will talk about our undeniable need for road repairs, education upgrades and medical research, but will shy away from explaining how to pay for them.

Right now, it seems that every tax proposal but one -- making the truly rich pay back some of the trillion-dollar tax giveaway -- is on the budget summit table. Higher gas taxes, higher liquor taxes, cuts in Social Security benefits, maybe even a national sales tax -- all would hit middle-income families hardest.

If middle-class voters don't make 1980s tax giveaways to the few the main issue in the 1990 election, then Congress and the president will do what comes naturally: they will come up with a deficit-reduction plan that soaks the middle class. It's that simple.

BRUCE FISHER is research director at Citizens for Tax Justice in Washington.

There are no comments - be the first to comment