Budget bill eases burden on poor, raises taxes for the wealthiest

October 26, 1990|By Stephen E. Nordlinger | Stephen E. Nordlinger,Washington Bureau of The Sun

WASHINGTON -- The bipartisan deficit-reduction deal, expected to come to a House vote today, would raise federal taxes moderately for the broad spectrum of middle-income taxpayers.

But preliminary figures compiled by congressional tax analysts show that the package would reduce the tax burden for the lowest-income taxpayers while raising it for the most affluent.

Those with incomes below $10,000 a year would receive a cut in taxes of 2.1 percent. Taxpayers earning from $10,000 to $20,000 year would get a tax cut of 2.8 percent. Both would benefit from an expanded tax credit, which benefits poor working families with children.

On the other hand, the 600,000 wealthiest taxpayers, those with incomes above $200,000 a year, would see their taxes raised by 6.3 percent.

The majority of taxpayers, who fall between those extremes, would have tax increases of about 2 percent, although those earning between $50,000 and $75,000 would get a 1.5 percent increase.

By reducing the tax burden on the poor and raising it on the wealthy, the new package marks a break with past changes in the tax code by being more progressive.

The Joint Committee on Taxation estimated that the share of federal taxes paid by people with incomes over $200,000 would rise from 15.4 percent to 16.1 percent.

At the same time, the share of total taxes paid by people with incomes between $10,000 and $20,000 would fall slightly, from 7.6 percent to 7.3 percent.

"The plan adds slightly to the progressivity of the tax code, but it is only a modest change," said C. Eugene Steuerle, former deputy assistant treasury secretary for tax analysis. "It is not going to have much of an impact on reducing income inequality."

But the plan is considerably more progressive than the one that emerged from the budget summit between the White House and congressional leaders but was rejected by the House. That proposal would have raised taxes on those earning less than $10,000 by 7.6 percent and raised them on those earning more than $200,000 by only 1.7 percent.

The new package would raise taxes by about $150 billion over the next five years.

But for most taxpayers with incomes below $50,000, the only larger tax bite would come from higher excise taxes on gasoline, cigarettes and alcoholic beverages.

In one of its major differences from the summit package, the new plan would raise gasoline taxes by 5 cents a gallon rather than the 14 cents originally suggested.

In attempting to place more of the burden on wealthy taxpayers, the new package would raise the tax rate for the wealthiest to 31 percent from 28 percent.

In addition, the proposal would phase out the personal exemption for upper-income taxpayers and would reduce itemized deductions by 3 percent of the amount of adjusted gross income above $100,000.

Gradually scaling back the personal exemptions for affluent taxpayers would put the top rate still higher, with larger families paying a higher rate than those with few children because more of their personal exemptions would be phased out.

The effect of the phaseout would be to raise the top rate by one-half a percentage point for each curtailed exemption.

Some tax experts think many taxpayers earning between $100,000 and $200,000 a year, including members of Congress, will not experience a tax increase because their top rate will be falling to 31 percent from their current rate of 33 percent.

The new package also reduces the capital gains tax to 28 percent from the current 33 percent.

But many members of Congress maintained that the new plan restored some progressivity to the tax code.

"We had to appease the president, so we couldn't raise the rates as much as we wanted, but indirectly we increased them and made the tax system more progressive," said Representative Benjamin L. Cardin, D-Md.-3rd.

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