Mikulski's tax bill aids rich the most

December 05, 1991|By John Fairhall | John Fairhall,Evening Sun Staff

WASHINGTON -- "Middle-class America needs a tax cut," says Sen. Barbara A. Mikulski, D-Md.

But the "Middle Income Tax Cut Bill" that she's co-sponsoring isn't just for the middle class.

"The largest tax benefits would go to the wealthy," concludes the private Center on Budget and Policy Priorities.

In fact, Mikulski's bill is one of several tax-cut proposals that, while promising help for average Americans, represent a mixed bag of benefits for various income groups and for the economy.

Taxpayers would have a hard time trying to figure out how the bills affect them if they relied on Congress for explanations. Lawmakers have spent more time trying to score political points in advance of the 1992 elections than in discussion of the impact of tax legislation.

Although congressional committees were scheduled to begin hearings today on the issues, such as the effect of tax legislation on the economy, partisan sparring may obscure the gritty details.

To illuminate the tax debate, The Evening Sun has consulted the Center on Budget and Policy Priorities, a liberal group that examines the impact of federal fiscal policies on the poor, and economist Daniel J. Mitchell of the conservative Heritage Foundation.

The bill that Mikulski is co-sponsoring is a good place to begin, for it encompasses features contained in some other major tax-cut proposals.

At first glance, the "Middle Income Tax Cut Bill" lives up to its name. Introduced by Sen. Lloyd Bentsen, D-Texas, the measure would provide families a tax credit worth $300 for each child age 18 and under living in the same household.

"It gives an honest and helpful tax break to middle-class families and one that will show up, right now, in their checkbooks," says Mikulski, a liberal known as a champion of the poor and working class.

But here's what catches the center's attention: The bill also makes all families eligible for tax-deductible Investment Retirement Accounts. This liberalization of IRA rules -- a feature of several other tax proposals -- benefits higher-income people.

At present, couples who are covered by a retirement plan, and have adjusted gross incomes of $50,000 or more, cannot deduct IRA contributions from their taxes. Couples with incomes between $40,000 and $50,000 can take a partial deduction; couples earning $40,000 or less get the full deduction.

"As a result, the lion's share of the benefits from these IRA proposals would go to those at higher-income levels," says the center. "Since these taxpayers would also qualify for the $300-per-child tax credit, the average upper-income taxpayer would get a larger dollar tax cut under the Bentsen plan than would the average middle-income taxpayer."

Mikulski's press secretary, John Steele, disputes the center's conclusion: "We don't consider a family of four with an income of $40,000 rich. And what in fact this legislation does is extend the benefit to the very people that we're trying to help here, which is the middle class."

Steele also notes that the bill would help a broad range of people by ending penalties for IRA withdrawals when the money is used to buy a first home or pay college tuition.

The center criticizes Mikulski's bill for providing no help to low-income families, including working families who earn too little to pay income tax and hence would not be eligible for children's tax credits. A family of four with income of less than $15,250 would receive no benefit from the tax credit.

"Some 45 percent of Hispanic children and 50 percent of black children would be left out of the children's tax credit," the center estimates.

Other Democrats, including Sens. Bill Bradley, D-N.J., and Al Gore, D-Tenn., have introduced tax credit bills that would ensure that all families with children receive at least a small amount of money from the Internal Revenue Service, whether they paid taxes or not.

In Mikulski's defense, Steele says she helped low-income families last year by supporting legislation that doubled the earned income tax credit.

"In all due respect to the Center on Budget and Policy, this should not be taken as an action to the exclusion of anyone else," Steele says. "This is what it says it is, middle class income tax relief."

Mitchell, an economist who is the senior fellow at Heritage, is pessimistic about the outcome of the tax-cut debate.

"Between the Democrats on Capitol Hill and the White House, I'm very dismayed," he says. "I can't imagine good tax policy coming out of it."

Mitchell criticizes tax-credit bills like Mikulski's. Just giving people more money to spend is not very useful, he says, noting "that kind of tax credit doesn't change incentives in the economy."

"It doesn't induce employers to hire more workers, it doesn't induce employees to work harder . . . it doesn't induce anything," he says.

Mitchell says he likes to look beyond the details of who gets what tax break. "I think the most important thing is what is the economic impact of tax change," he says.

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