Tax Policies Rule Out a Kinder, Gentler Nation
Does President Bush realize that, despite the paltry relief provided the poor in the 1986 reforms, federal tax policies as they exist today make it all but impossible for the United States to be a kinder and gentler nation?
The evidence is now voluminous and conclusive that the wealthiest Americans are getting wealthier each year, and the poorest Americans are becoming hopelessly poorer.
When Bush says that there will be no significant changes in our tax policies, does he mean that he wants this terribly wrong trend to continue?
Recently the House Ways and Means Committee issued a study showing that American families on the bottom of the income scale suffered an 11% reduction in income adjusted for inflation in the period from 1973 to 1987. Most of that drop for the 20% of our lowest-income people occurred in the period from 1979 to 1987.
The committee also found that the top 20% of American families benefited the most, with a gain of 24% in purchasing power from 1979 to 1987.
This study came on the heels of similar news from the nonpartisan Congressional Budget Office, which found that after inflation, most American families in 1988 had lower incomes than they did in 1977. And the poorest 10% of our population gave 20% more of its income to the federal government, while the richest 10% paid 0.4% less than in 1977.
The most stunning findings of the Congressional Budget Office were as follows:
By the end of 1988, 80% of our families had seen their incomes decline since 1977 when adjusted for inflation. But the richest 10% of Americans saw an average increase of 16%. The top 5% averaged a 23% rise and the wealthiest 1% saw their incomes grow by 50%.
The sobering image that emerges from these statistics is that there has been a major new stratification of American society along class lines, despite three tax reform efforts in 1978, 1982 and 1986.
The Tax Reform Act of 1986 was hailed for removing 6 million working-poor people from the income tax rolls as a result of increased personal exemptions. And recent legislation establishing the “earned income credit” also was meant to give relief to the working poor. But the Congressional Budget Office study concludes that these gains were wiped out by higher Social Security taxes and by higher taxes on alcohol, tobacco and gasoline.
We also should not forget that tax-reform concessions to the working poor do not justify a tax policy that extracts a higher price from our most vulnerable people when we spend less for housing, education and health care in our attempts to deal with the federal deficit.
The clear reason for this drastic shift in income distribution was an attitude shared by the Reagan-Bush Administrations and Congress. That attitude holds that progressivity, for many years a valid idea that proposes that those who can afford it should pay more to sustain the whole of America, has now become a dirty word.
Where can we begin to stop the economic punishment of the working poor and once again proclaim the social contract that made America a sign of hope for the poor and oppressed of the world?
We can start with that absurd 28% top rate.
When Ronald Reagan came to Washington in 1981, his first major proposal was for an across-the-board 25% tax reduction for every American. The maximum rate would drop from 70% to 50%. That sounded good to tax-weary American workers.
The President sold that across-the-board idea wherever he traveled, and people bought it without realizing that 25% of $1 million is an awful lot of money compared to 25% of $1,000, especially when the poor and middle class had to give their windfall back in the form of higher Social Security taxes.
That was the first torpedo fired at progressivity, and the Congress saw nothing wrong with it.
After Reagan won reelection in a landslide in 1984, it was only a matter of days before Treasury Secretary Donald Regan unveiled another tax-revision plan. This time the maximum rate would drop precipitously once more, from 50% to 35%.
Congress struggled fitfully with the new proposal, and in return for the elimination of some egregious shelters and loopholes, a House-Senate conference committee brought forth an astonishing two-tier rate that saw the middle class paying 33% maximum and the richest people in America paying only 28%.
What a coup for the most affluent people in the United States. Think of it. Donald and Ivana Trump pay their taxes at a lower rate than John and Margaret Suburbanite.
The poor in America are sinking, Mr. President. Nevertheless, they still try mightily to improve their condition. But our poorest people need more help. They need a more compassionate and fairer government, and they need your help to give it to them.