Bushes' tax return would take hit in Democrats' proposal

October 18, 1990|By John Fairhall | John Fairhall,Evening Sun Staff

WASHINGTON -- If President Bush viewed each of the proposed budget plans purely as a taxpayer, he would hate the House Democrats' plan.

He would have paid up to $18,000 more last year in federal income taxes under the Democratic plan passed by the House Tuesday.

Yet, no matter which plan is finally enacted, Bush probably will pay more taxes. His tax bill for last year would have been $5,000 higher under the Senate Finance Committee plan and $3,000 more under the original budget plan the House killed earlier this month.

Bush's tax liability was calculated for The Evening Sun by Gary F. Bulmash, a certified public accountant and associate professor of accounting at American University. Bulmash's calculations were limited to federal tax considerations and based on George and Barbara Bush's tax return for 1989, which was made public in April.

Bulmash did not attempt to gauge the impact of other provisions of these plans, such as higher taxes on gasoline, cigarettes and alcohol.

The analysis of Bush's tax liability helps illustrate the widely varying effects on taxpayers of the different budget-tax plans.

House members defeated the original plan, worked out by congressional leaders and Bush, in part because it would have put most of the burden of higher taxes on the poor and middle class.

The House Democrats' plan appears crafted to produce the opposite effect, hitting hardest the taxpayers with incomes greater than $200,000, like the Bushes, who had adjusted gross income of $457,000 last year. These taxpayers would pay 63 percent of the $149 billion in new taxes the House Democrats' plan would raise, according to the Center on Budget and Policy Priorities, an independent, non-profit Washington group that favors progressive taxation.

Yet, taxpayers in the $100,000 to $200,000 group would bear just 5 percent of the tax burden, the center calculated this week.

Although Bush criticized the House Democrats' plan as a "tax increase on working men and women," the center says it is the most progressive plan. It requires those making less than $50,000 to pay only 11 percent of the $149 billion tax bill.

"It is sometimes said that if a large amount of taxes needs to be raised, the bulk of taxes must come from the middle class because there simply are not enough rich people from whom to raise the revenues," said center director Robert Greenstein. "The House Democratic alternative casts serious doubt on this proposition."

The center contends that the plan is not "overly burdensome" on wealthy people because it raises their average tax payment by 7.4 percent. By comparison, the average federal tax obligations of the wealthiest 1 percent of taxpayers fell 14.4 percent between 1980 and 1990, according to a study reported earlier this year by the Congressional Budget Office, Greenstein says.

The center's conclusions are supported by an analysis by the congressional Joint Committee on Taxation.

With a Bush veto threat hanging over the House Democrats' plan, many lawmakers predict there will be a compromise closer to the Senate committee version or even the original budget plan.

The House Democrats' plan differs sharply from the other two in that it extends the 33 percent top tax rate to all of the highest-income taxpayers, imposes a 10 percent surtax on all taxable income above $1 million, shelters some capital gains income from taxation and contains no increase in gasoline taxes.

Bush's tax liability, for example, rises most under the House Democrats' plan because of the extension of the 33 percent top tax rate, Bulmash's analysis shows.

The Senate committee plan and the original plan would raise gasoline taxes as much as 10 cents a gallon by Jan. 1, 1992. All three plans would raise taxes on cigarettes and alcohol, impose a 10 percent tax on luxury goods and raise the ceiling on wages subject to the 1.45 percent Medicare tax from $51,300 to at least $73,000. The House Democrats' plan would raise the cap to $100,000.

The Senate committee's plan places a greater tax burden on wealthier taxpayers than the original budget plan in part because it would restrict itemization of deductions by wealthier taxpayers. That explains why, in Bulmash's analysis, Bush would pay $5,000 more in taxes, rather than $3,000, as he would under the original plan.

The shape of the plan that emerges from Congress will depend heavily on how lawmakers and Bush resolve their differences over so-called "fairness" issues, specifically the income tax "bubble" and capital gains.

The bubble is the 5 percent income tax surcharge imposed on upper-middle-income people, which raises their top rate from 28 percent to 33 percent. The rate drops back to 28 percent at higher income levels.

Critics, including many lawmakers, favor raising the rate for all upper-income taxpayers to 33 percent. But Bush and many Republicans say that must be accompanied by a sharp decrease in the 28 percent rate on capital gains, a move that would help many wealthier taxpayers.

Again, consider Bush's case. He reported capital gains of $36,000 from a blind trust in which his assets are administered without his knowledge. Any across-the-board cut in the capital-gains tax rate would benefit him.

The House Democrats' plan also might benefit Bush because it shelters capital gains income that does not derive from the sales of securities. If Bush's capital gains income in 1989 fell into the sheltered category, which can't be determined because it stems from a blind trust, his tax bill would have risen by $11,000 instead of $18,000.

As it was, Bush and his wife paid $101,000 in federal income taxes.

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