As Tuesday's deadline for filing income tax returns approaches, Americans can reflect on a study that shows they will have to work longer to pay their taxes this year. Despite federal income tax cuts during the Reagan years, the total tax bite has increased. According to the Tax Foundation, the average American will have to work 2 hours and 49 minutes of each eight-hour workday to make enough money to pay all federal, state and local taxes. The Washington group says this is a record -- and one minute more than last year. In 1960 it took two hours and 20 minutes and in 1930 just 58 minutes, according to the Washington-based research group.
While Congress continues to talk about tax relief, just how realistic is the prospect that Americans' total tax bite can be reduced, especially given all the concern over Social Security and Medicare, much less state and local issues?
Are real tax cuts possible?
Or is the likely scenario that a cut in one tax will be more than made up for by an increase in another?
Economist, Tax Foundation
Are tax cuts feasible? They're always feasible, but you have to reduce spending. If we moved to a private [Social Security] system, paid off beneficiaries and encouraged more private savings for retirement, sure we could have a tax cut. But for the next 50 years, the whole fiscal picture will be driven by entitlement spending, now two-thirds of the budget. The problem with the current system, it's a Ponzi scheme. Fewer and fewer people are supporting greater and greater numbers.
On the state and local level, often these tax cuts are met with tax increases somewhere else in the budget. This is a constant problem. These governors are always upset that their tax freedom days [the day of the year after which Americans have paid their total tax burden] don't move. Last year, people in Maryland worked until May 6th.
The reason it [tax burden] goes up is that the tax system is progressive. During good economic times, the tax burden on Americans increases. The only way to get a reverse of this is to have bad economic times.
Bradley Senior Research Fellow, Institute for Policy Innovation
I personally think tax cuts are going to become more difficult, and it's the hurdle of balancing the budget and -- this charge turns out to be erroneous -- that tax cuts favor the rich.
We're facing the very real possibility of ever increasing tax burdens like nothing we've seen before. When I say tax cuts, I'm not talking about a $500 tax credit for kids or tuition credits. I'm talking about major reform -- of looking at the issue of how to structure the tax system so it does the least economic damage.
Our economy needs to be growing faster than it is to better meet challenges we have coming in the next century.
The tax system can be changed to not penalize saving and investing as much as it does today, and that would really help.
I'm talking about a pro-growth tax cut, as opposed to targeted tax cuts. If we would go with some of the capital gains proposals, those are relatively small tax cuts that would have a benefit. It would benefit growth and would really pay for itself.
Chief economist, Primark Decision Economics
Any significant easing of the tax burden is unlikely since balancing the budget would require offsetting with tax increases or cuts in outlays. Politically, the kinds of cuts and outlays necessary to fund any tax cuts are very difficult.
Until the government is streamlined to become more efficient and involve fewer workers, I doubt there will be enough money available for the kind of tax relief all Americans would like to see. What has to happen is the election booth has to let the government know it wants government to streamline itself.
There is a big debate. The specific tax cuts, family income tax credit, those are not major tax changes. Those will not significantly reduce the burden of taxes on American families, nor reduce the hours and minutes we all have to work to pay tax bills.
Director of fiscal policy, Cato Institute
I'm very optimistic that we will have a tax cut from Washington in 1997. Both Bill Clinton and the Republicans in Congress are in favor of tax cuts. What they're arguing about is the magnitude of the reduction.
The reason this is so politically popular right now is taxes are at an all-time high. The average family pays 40 cents of every dollar in federal, state and local taxes.
What we're likely to see this year is a cut in the capital gains tax, an expansion of IRAs so workers can put more savings in tax-free savings and relief from onerous death or estate taxes.
That's not to say some taxes may not rise. It's quite possible we're going to see closing of some of the tax loopholes .
Pub Date: 4/13/97