Tax Report Says Rich Gained, Poor Lost During ‘80s

In a finding that could undermine President Bush’s plan to cut capital gains taxes, a House committee report said Monday that during the 1980s, the rich paid lower taxes on more income, while the poor felt a sharper tax bite.

The report, based on Congressional Budget Office and other agency studies, is to be released today by the House Ways and Means Committee at a hearing where Treasury Secretary Nicholas F. Brady and Budget Director Richard G. Darman are scheduled to testify.

The report shows that the effective tax rate for the poorest 20% of American families rose 16.1% during the 1980s while real income rose 3.2%.

During the same period, it says, the effective tax rate for the richest 20% of families dropped by 5.5% while their real income rose 31.7%.

That statistic and others in the report could add fuel to Democratic claims that wealthier Americans, who would benefit most from a capital gains tax cut, do not need or deserve another tax break.

Some Democrats opposed to capital gains tax cuts have proposed tax breaks they say would benefit more middle-income families instead, such as a reduction in the Social Security payroll tax.

For those Americans in the top 5% of earners, the report says their income rose from more than 15 times the poverty level in 1980 to an estimated 22.5 times the poverty level in 1990--a 46.1% increase.

“The story of the ‘80s is that the rich did well and that the poor lost ground,” said one Ways and Means Committee staff member who asked not to be identified.

Last year, in a bitter partisan battle that stalled vital budget-related legislation for months, Senate Democrats defeated Bush’s plan to lower the tax rate on capital gains, which had passed the tax-writing Ways and Means Committee and the full House.