mark
Making April 15 Less Revolting By E. J. Dionne Jr. Tuesday, April 11, 2000; Page A23
With Tax Day fast approaching, this is the week the anti-tax movement anticipates annually as an opportunity to ignite a rebellion. If a tax revolt doesn't start this week, it's not going to happen.
You can bet your tax refund it won't. The year 2000 is not the year 1978, when the last tax revolt hit full stride with the passage of California's tax-cutting Proposition 13. A popular upheaval against taxes helped create the majorities that made Ronald Reagan president.
The rebellion against taxes has abated because, for most Americans, taxes are not the burden they were in the mid-1970s and early 1980s. Middle- and lower-income Americans are paying less in federal income taxes now than they were two decades ago. The tax rates on the wealthy have gone up, but their after-tax incomes have gone up too.
Those lobbying for a big tax cut emphasize a different number. They'll say, correctly, that the federal government is taking a larger share of the economy in taxes (roughly 20 percent) than it's taken at any time since World War II. Over the past quarter-century, this number has hovered between 17.2 percent and 20.3 percent, and it's on the high end now.
What's changed is the distribution of the tax burden. Ronald Reagan's tax cuts of the early 1980s and the 1986 tax reform combined with Bill Clinton's tax policies to shift the income tax burden away from people in the middle and at the bottom of the economic ladder. Reagan cut taxes across the board. The Clinton tax plan of 1993 raised the top rates on the wealthy, but it also gave tax cuts and subsidies (through the Earned Income Tax Credit) to the poorest of working Americans.
Here's the result: According to Treasury Department figures, the average federal income tax rate on a family of four at the median income was 7.5 percent in 1999, down from 11.8 percent at its peak in 1981. The median family's income tax rate, as my Brookings Institution colleague Bill Gale points out, is the lowest it's been since 1966. The median, now at roughly $46,700, is smack in the middle of the middle class: half of all families earn above it, half below it.
Families closer to the bottom--those earning half of the median income--have never had it so good where income taxes are concerned. Their income tax rate is now negative. They get more in subsidies from the Earned Income Tax Credit than they pay in income taxes.
Even the better-off parts of the middle class aren't doing badly. Families earning twice the median are paying 14.1 percent, down from 19.1 percent in 1981.
But somebody is paying the bills. A churning stock market has produced a lot of capital-gains taxes, and the well-off are paying more. The share of income taxes paid by the top one-fifth of earners has risen steadily: It was 68 percent in 1983, 72 percent in 1987 and 79 percent in 1999. The share of the income tax take from the top 1 percent, the truly wealthy, has gone from 20 percent in 1983 to 29 percent now.
The middle class and the poor aren't off the hook. Their burden is in payroll taxes. If political candidates proposed cuts in the payroll tax rather than the income tax, they might win a stronger, if still muffled, response.
But most of them, including George W. Bush, focus on big income tax cuts for top earners. No wonder Bush says over and over that his plan to cut income taxes is a sign of courage because it's unpopular. He's right about its lack of political reach. For most Americans, the income tax isn't the burden it once was.
Even the best-off, who would no doubt like an income tax cut, have reason for prudence. The Congressional Budget Office finds that in inflation-adjusted dollars, the after-tax incomes of the top 1 percent have risen by 24 percent since 1987--from $379,712 then to $471,664 now. Polls suggest that many among the well-off are willing to keep taxes where they are, as long as the economy (and their incomes) keep growing.
If you're struggling with tax forms, all this is probably no comfort at all. But it does explain why big tax cuts don't work for politicians now the way they did for Ronald Reagan. On Election Day, if not on Income Tax Day, these numbers will matter.
© 2000 The Washington Post Company