Overall U.S. tax take at post-World War II high
WASHINGTON (AP) – For millions of middle-class families singled out for tax relief by Congress, the federal income tax burden is hundreds of dollars a year less than it was just four years ago. Yet the overall U.S. tax take from the economy is higher than at any time since World War II.
As Americans scurry to file their income tax returns before this year’s April 17 deadline, debate rages between Republicans and Democrats, congressional leaders and President Clinton: Should the federal budget surplus be used to cut taxes, boost spending or guarantee that Social Security and Medicare are on sound financial footing?
What had been a loud, national outcry for tax relief a few years ago has muted considerably, in part because many middle-class families are paying less to Uncle Sam.
The Congressional Budget Office, for example, estimates that the total federal tax take on a family of four at the national median income – a gross income of about $39,000 last year – was 18.9 percent in 1999, down from 19.7 percent four years earlier. The Joint Committee on Taxation puts the 1999 figure for families of four earning between $40,000 and $50,000 at 16.1 percent, compared with 17.3 percent in 1995.
Taking only the federal income tax, the Treasury Department estimates a family of four earning $54,900 in 1999 paid a tax rate of about 7.5 percent, down from 9.3 percent in 1995 and the lowest rate for people in the median income group since 1965.
”Their tax burden is lower than it has been, depending on which measure you use, than any time in the last two decades, or the last three decades,” Treasury Secretary Lawrence Summers recently told Congress.
There are many reasons for this. President Reagan’s huge tax cuts in 1981 and the tax code overhaul of 1986 removed millions of lower-income taxpayers from tax rolls and reduced taxes on high-income people.
During the 1990s, Congress and Clinton have focused tax relief on the middle class, particularly in the 1997 tax bill that created the $500-per-child tax credit and credits for education.
”There has been a basic decision that underpins much of recent tax policy: It’s really expensive and hard to raise children in this day and age,” said Iris Lav, deputy director of the Center on Budget and Policy Priorities, a nonpartisan research group focusing on government’s impact on middle- and lower-income people. ”The thinking is that moderate and upper-middle-class people deserve a break for doing that.”
The budget center’s research indicates that middle-income families are paying $300 to $400 less on average in income taxes in 1999 than they did in 1995.
Yet this is only part of the story.
”We are happy we have been able to reduce the tax burden on families with children,” said Rep. Bill Archer, R-Texas, chairman of the tax-writing House Ways and Means Committee. ”But that in itself should not be the gauge of whether the government is taking too much money out of the economy.”
The total U.S. government haul in taxes – income, corporate, capital gains, gasoline, excise taxes, telecommunications, payroll, and so on – amounts to about 20 percent of the nation’s gross domestic product, more than any time since 1944.
To Republican tax cutters, this tax take is a drain on free enterprise that is providing the government with a huge surplus just begging to be spent on more programs and more bureaucrats. Archer cited research showing that business taxes make up 20 percent of the cost of goods and services, a hidden tax on the very same middle-income people who may be paying less in income taxes.
”It all factors into the fabric of the average worker’s life, even though it might not directly appear on his 1040 form,” Archer said. ”We are taking more out of the economy than we need. That has got to show up in the bills people are paying, and they don’t even know it.”
Republicans from Texas Gov. George W. Bush, the party’s presumptive presidential nominee, to Archer are pushing for broad tax cuts to return some of that surplus to those footing the bill. Looking at just the income tax, the top 10 percent of earners now pay 66 percent of the tax – meaning that broad tax cuts necessarily benefit wealthier people.
”The harder you work, the longer you work, the more you pay. That’s wrong in my view,” Archer said.
Summers, however, said the increase in taxes as a percentage of gross domestic product has been driven mainly by rising capital gains collections – primarily on investments from the booming stock market – and income from corporate profits. In both cases, Republicans are open to Democratic attacks that broad tax cuts are aimed primarily at rich people who do not need them.
The senior Democrat on the Ways and Means Committee, Rep. Charles Rangel of New York, said the debate comes down to priorities: Should the surplus in tax collections go back to taxpayers, or should it be used for modest tax cuts after boosting spending on education and health care, paying down the national debt and keeping Social Security and Medicare solvent in the future?
”The fact that we have lower taxes is good, but you don’t keep money just because some people are paying less,” Rangel said. ”You ought to find out what your obligations are and take care of your fiscal problems. This is our chance to do something about it.”
On the Net:
Joint Committee on Taxation: http://www.house.gov/jct
Congressional Budget Office: http://www.cbo.gov
Center on Budget and Policy Priorities: http://www.cbpp.org