For many Americans, new budget would land on their wallets

October 01, 1990|By Edwin Chen | Edwin Chen,Los Angeles Times

WASHINGTON -- The new budget deficit-reduction agreement that President Bush and congressional leaders signed yesterday is destined to hit American consumers squarely in their pocketbooks.

If Congress enacts the new accord, cigarettes, liquor, gasoline and other fuels soon will cost more. The agreement also calls for a new luxury tax on expensive consumer products, ranging from cars and yachts to furs and jewelry.

In addition to higher levies on tobacco, alcohol and energy, the package would require higher-salaried employees to contribute more to help finance the fast-rising costs of the federal Medicare program. Currently, workers pay 7.65 percent of their income up to $51,300 as Social Security withholding taxes, 1.45 percent of which is for Medicare. The new agreement would continue the 1.45 percent up to $73,000 in annual earnings.

Employees of state governments, who currently do not pay the Medicare tax or Social Security, would be brought into the system.

Most individuals or families earning more than $100,000 would pay more income taxes, with the government disallowing ((TC percent of itemized deductions for the amount of income above the $100,000 threshold. For example, if a taxpayer had an income of $150,000, the taxpayer would lose 3 percent of the deductions on $50,000, or $1,500.

But the news is not all bad.

By reducing the federal government's borrowing needs, the new budget plan should bring down interest rates. "Long-term interest rates should be able to come down," the president said at the White House yesterday afternoon.

If the package is adopted by Oct. 19, as the president and congressional leaders hope, a 5-cent gasoline tax increase would take effect Dec. 1, with an additional 5-cent increase next July 1. It is estimated that each penny increase in the gas tax will cost American drivers about $1 billion a year. The current levy is 9 cents a gallon.

Separately, a 2-cent tax on each gallon of crude oil would take effect Jan. 1.

Joseph Lastelic, a spokesman for the American Petroleum Institute, said that higher gas taxes in the past have had very little effect on consumption and that the proposed new increases would be no different. Mr. Lastelic also said that the higher taxes would hurt consumers in the West more than elsewhere around the country because they drive greater distances.

The deficit-reduction package calls for a 4-cent-per-pack cigarette tax increase on Jan. 1 and a second 4-cent increase in 1993.

The Tobacco Institute, the Washington-based lobbying group for the tobacco industry, said the proposed increases -- coming on top of the current 16-cents-per-pack federal excise tax -- would be regressive in that the increases would disproportionately hit the middle class and poor, who make up most of the nation's 50 million to 60 million smokers.

The agreement also contains sharp tax increases for beer, wine and distilled liquor. It calls for more than doubling the current 16-cents-per-six-pack federal beer tax, which will cost beer drinkers an additional $1.5 billion a year, according to Jeff Becker, a spokesman for the Beer Institute.

The tax on wines would go up by 24 cents a bottle and on distilled liquor by $1.20 per gallon.

According to the Distilled Spirits Council of the United States, the current federal taxes on hard liquor are about $2 on a fifth of liquor or more than 25 percent of the cost of an average bottle.

The luxury tax calls for a 10 percent levy on the portion of the retail price in excess of $30,000 for cars, $5,000 for furs and jewelry and $100,000 for private airplanes, boats and yachts.

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