Category: Taxes

Between now and 2015 Social Security will accumulate large surpluses. Social Security reform proposals before Congress would utilize these surpluses by allowing workers to invest 2 percentage points of their payroll taxes in personal retirement accounts (PRAs). The PRA balances, with their accumulated interest and dividends, would replace an increasing portion of retirees' Social Security benefits and reduce the government's obligation to pay retirement benefits.

The Tax Code is littered with rules that phase out various deductions, exemptions and credits as taxpayers' incomes rise. These rules create hidden increases in marginal tax rates for unsuspecting citizens and greatly complicate tax calculations. Some of the items that taxpayers lose with higher incomes are deductible individual retirement accounts, Roth IRAs, the earned income tax credit (EITC), the exclusion of Social Security benefits from taxable income, the child credit, education credits and deductions, a portion of itemized deductions, even the personal exemption.

A key component of President Bush's tax plan is eliminating the gift and estate tax, also known as the "death tax." This tax hits estates of more than $1 million in net assets with rates as high as 55 percent. The death tax raises very little revenue, yet it does significant harm to the economy, imposes very high compliance costs and fails to curtail the transmission of wealth from one generation to the next. It is arguably the most counterproductive tax in the entire Internal Revenue Code.

For more than 50 years, America has relied on employers as the primary source of health insurance coverage. For the most part, this has been a successful approach, providing coverage in 1998 to 155 million people, compared to only 15.5 million who purchase their own coverage.

On July 19 the House voted to expand the amount taxpayers can invest in Individual Retirement Accounts (IRAs) and 401(k) retirement plans. With the help of 181 Democrats, the Republican-initiated proposal passed 401 to 25. Despite the measure's bipartisan support, it prompted a polemical attack from the White House, which issued a "fact sheet" against congressional tax bills, arguing they would drain money from the surplus, leave too little for "key priorities" (spending) and fail to equally benefit those who pay taxes and those who do not.

For the third time, Congress may pass a bill to expand educational opportunities for the children of middle- and lower-income families. The Affordable Education Act (S. 1134) being considered by Congress would expand Education Savings Accounts (ESAs) in a number of ways, including allowing them to be used for expenses from kindergarten through the 12th grade.

Former Sen. Bill Bradley is the first credible presidential candidate to call for abolishing Medicaid and allowing low-income families to buy private insurance instead. He would also end the discriminatory practice of denying tax relief to those who buy their own insurance by creating tax credits for low-income purchasers and tax deductions for everyone else.

Almost daily, left-wing organizations – Citizens for Tax Justice and the Center on Budget and Policy Priorities are two of the most prominent – have been publishing attacks on the House and Senate tax bills. Their analyses are often recycled in White House and Treasury Department statements and repeated by liberal reporters. The gist of the attacks can be summarized briefly: the tax cuts are nothing but give-aways to the rich.

The tax burden is measured in different ways, but by almost every measure, federal taxes are at an unprecedentedly high level, Congress can solve that problem by moving quickly to reduce the tax burden by cutting income tax rates at least 10 percent this year.

During the 1980s more than 50 countries including the United States and the United Kingdom sharply reduced their highest tax rates, particularly on capital. However, in the early 1990s most of the largest economies reversed course and began raising rates on income and payroll taxes or both. By the fall of 1991 an observant columnist for the Financial Times noted that, "In the early 1990s, the name of the game is raising taxes. The nostrums of the supply-siders look as dead as the celebrated dodo."

Internal Revenue Service Commissioner Charles Rossotti recently estimated that the federal government is losing $195 billion per year in revenue due to the failure of people to report income and pay taxes on it.

In its haste to enact one of the largest tax increases in U.S. history, Congress has done precious little analysis of the social and economic impact of the proposed tobacco bill.

House Ways and Means Chairman Bill Archer (R-Texas) has proposed giving tax deductions to people who purchase their own health insurance. House Health Subcommittee Chairman Bill Thomas (R-Calif.) has proposed an even more radical idea: making health insurance personal and portable for everyone. These proposals would make health insurance more affordable, reduce the number of uninsured and give people more control over their health care.

Since the sweeping tax cuts of 1981, little has been done to directly benefit middle-income American families – those with taxable earnings between $30,000 and about $65,000 a year. During that period, federal taxes have been raised eight times, with only one small tax cut in 1997. The latest figures from the Tax Foundation show that the taxes have been ratcheted upward so that in 1997 the total burden of federal, state and local taxes on a median-income two-earner family was 38.2 percent of income.

President Clinton wants to use any possible budget surplus to save Social Security. Republican leaders in Congress want to use any money from a possible tobacco settlement to save Medicare. But neither approach will work unless we replace our chain-letter approach to elderly entitlements with fully funded systems, under which each generation finances its own retirement and health care expenses.

Since ancient times, people have feared and suffered at the hands of tax collectors. The ancient writer Lactantius tells us that Roman tax collectors would always double the tax when they were sent to collect it, in order to make sure that their efforts were rewarded. Tax collectors were so pervasive, he says, "there was no threshing-floor without the taxman there, no vintage without a guard on the spot."

One of the most important factors in evaluating tax legislation is the distributional impact of the tax changes. The Treasury Department produces tables showing the effects of tax cuts and tax increases on people with different incomes. However, Treasury's distribution tables bear no relationship to reality, and fail to convey to policymakers any sense of how people are actually affected by proposed tax changes.