Dealing a fair tax reform

...None of the rival proposals would make that change, but all of them would increase the personal exemption...

...The three major tax reform plans before the Congress raise the standard deduction and personal exemption in ways similar enough that their effect on a four-person family with poverty-level income would be nearly the same, as the accompanying chart shows...

...Because of the failure to make adequate adjustments in the EITC, as the chart reflects, families with poverty lev^el incomes would still be subject to payroll taxes...

...by 1984 the poverty line had risen to $10,613, but the deductions and exemptions had not...

...and Bill Bradley (D.-N.J...

...That means a mother with three children begins paying taxes when her income reaches $6,300 (four $1,000 exemptions, plus the $2,300 deduction for the household head), but a married couple with two children — same size family, different composition, begins paying taxes at $7,400 (four $1,000 exemptions plus a $3,400 deduction for a married couple...

...and the EITC...

...That had not always been true...

...The danger in the present tax debate is not that the interests of poor families cannot be figured out or that the necessary improvements are unknown...

...Commonweal: 526 The steps needed to improve the system for poor people are not imknown or particularly complex...

...it should also apply to more income and be adjusted for family size so that larger families are not paying higher taxes than smaller families with the same income...

...Americans who take the low-paying, no-fringe jobs that nobody else wants were left out in 1981 when Congress happily gave tax breaks to virtually everybody else...

...So in 1981, when Congress failed to offset payroll taxes, or to raise the basic deductions and exemptions that determine where federal tax liability begins, people working at low-paying jobs found themselves taxed on incomes below the poverty line...

...Rather, it is that poor families' interests are as low on the list now as they were in 1981...

...In 1975, after payroll taxes had been raised to pay for annual cost-of-living adjustments (COLAs) in Social Security benefits, Congress created the EITC, or Earned Income Tax Credit, to reimburse low-paid workers for their payroll tax deductions...

...In 1979, when these levels were set, the poverty line for a family of four was $7,412, so there were virtually no taxes due...

...But those same provisions — the ZB A/standard deduction, the personal exemption, and the EITC (and to a lesser degree provisions like the child care credit) — could also be used to ease the plight of low-income families...

...In relative terms, the administration's plan actually proves more helpful to most poor families than does the tax plan offered by Democrats Richard Gephardt (D.-Mo...

...Of the tliree plans, the proposal by Republicans Jack Kemp (R.-N...

...Since most poor families take the standard deduction and use the short form, just changing this provision will make a big difference to poor families...

...None of the plans makes those changes...

...Rich people are affected by dozens of provisions in the tax code, but poor people are chiefly affected by three: the Zero Bracket Amount/standard deduction (for taxpayers who don't itemize, the ZBA/standard deduction largely determines where tax liability begins...

...NANCY amidhi writes regularly for Commonweal and is a frequent commentator on National Public Radio's All Things Considered...

...While everybody else was getting bigger tax breaks, "working poor" families were getting bigger tax bills...

...Less costly and more effective would be to convert the personal exemption to a tax credit — making it worth most to those with the lowest incomes, worth least to those with the highest incomes...

...That does not bode well for the interests of poor taxpayers...

...and the women who clean other women's houses aren't known to make political contributions...

...Under current tax law, the standard deduction is $2,300 for a single person or single parent, and $3,400 for a married couple...

...As a result, a family of four, with income at the poverty line, paid roughly $269 in federal and payroll taxes in 1978 but $1076 in the same taxes in 1984, an increase of over 300 percent...

...By lowering the value of the EITC, Kemp-Kasten would result in a net tax increase for many working poor families...

...Y.) and Robert Kasten (R.-Wisc...

...That is generally acknowledged — but not necessarily achieved — in each of the three major competing tax reform proposals before the Congress: Kemp-Kasten, Bradley-Gephardt, and the president's plan known as Treasury II...

...These three elements are not the whole story for poor families...

...Six years of a raw deal should be enough...

...Beginning in 1985, the standard deduction and personal exemption are indexed for inflation...

...Two-thirds of poor households have income from earnings, a little-known fact...

...The personal exemption — available to all taxpayers, no matter what their income — will be indexed for inflation as of 1985...

...One thing more is needed to make the tax system fairer to low-earning households, and none of the three plans deals with it adequately: changes in the EITC...

...The PACs now holding expensive fund-raisers for members of the congressional tax-writing committees don't have the tax treatment of minimum-wage workers on their agendas...

...A tax credit is subtracted from the amount of taxes otherwise owed — the amount saved is the same regardless of one's tax bracket...

...How mortgages and fringe benefits are treated, whether the dependent care credit is adjusted, and what happens to state and local taxes affect poor taxpayers as much or more than middle-class and wealthy taxpayers...

...And while not everyone would agree with either his description of the problem or the solution, on one point there is broad agreement: the present tax code is patently unfair to poor people...

...The Children's Defense Fund has a proposal to add a "dependent allowance" to the EITC, costing an estimated $500 million...

...That doesn't mean poor people are entirely without advocates...

...making the system fairer for poor families need not be...

...Because the current exemption is a deduction from before-tax income, it is more valuable the higher one's tax bracket...

...But the three plans are not as similar in their impact on poor families with less than poverty-level incomes or different family size, nor would they have the same effect in future years...

...The House of Representatives, most observers agree, will have a chance to vote on a tax reform bill this year...

...the high-priced lobbyists aren't pressing for fast action on behalf of poor families...

...Neither the president nor the Congress takes any responsibility for how that came to be, but having both acknowledge the problem is worth something — provided they're also prepared to act...

...That should offend every American's sense of fair play...

...The Senate, most think, will not, pushing action on tax reform into 1986 — an election year...

...For example Bradley-Gephardt does not include an inflation factor for exemption or deduction, and fails to make adjustments that would help families with more than two children...

...the personal exemption (the amount by which taxpayers can reduce the income on which they pay taxes...

...Until the 1970s, below-poverty incomes were exempt from all but Social Security payroll taxes, which were still low...

...so families with poverty-level incomes had to pay taxes on roughly a third of income...

...It's common to hear talk of poor people as " burdens on the taxpayer,'' yet over half of the nation's poor households were federal taxpayers in 1982, and many others had incomes from prior earnings that had been taxed — like Social Security and unemployment insurance...

...That could happen with or without more comprehensive reforms, and would restore a measure of fairness to a tax system that has gotten badly out of balance...

...The combined effect of changes in the ZBA/standard deduction and the personal exemption are critical...

...The objective is simple: No one should be paying taxes on incomes below the poverty line...

...This year, although poor people pay federal, state, and local taxes at an effective tax rate nearly equal to the richest segment of the population (22 percent versus 25 percent), and greater than many corporations with large profits, their interests are being treated merely as bargaining chips in the much bigger debate over tax reform...

...Because the president and Congress neglected to adjust those tax provisions important to poor families, federal policy effectively pushed low-earning working people into after-tax poverty...

...The EITC should not just be indexed to offset rising payroll taxes (only the president's plan does this...

...Today, poor families pay high taxes because the tax provisions important to poor families were all frozen from 1979 to 1985, while the tax provisions important to all other groups were being made more generous...

...But such matters are inextricably related to overall tax reform...

...But none of them would restore poor families to the tax situation they enjoyed in 1979, or to the tax situation they might have enjoyed if the tax provisions important to poor families had been reformed in the same way they were for other groups...

...Where poor people's interests are concerned, the tax reform proposals are a variant on the current raw deal: the numbers come out better than at present, but not so good as for poor people in the recent past...

...but the numbers and power of these advocates are small, and the sense of urgency that should be felt by the Congress on their behalf isn't there...

...The personal exemption is currently set at $ 1,000 per person...

...That is one way to help, but not the most efficient way to help poor families...

...But the unfairness in the present system is so clear Congress should move to correct at least this one piece of bad tax policy whether there is "comprehensive" tax reform passed or not...

...First, the ZB A/standard deduction has to be not only raised and indexed (all three of the leading tax reform measures would raise it to varying degrees and indexing starts in 1985), but adjusted as well so that single-parent households are no longer penalized (all but Bradley-Gephardt would do this...

...And poor people are directly affected by broader tax policy issues — like the president's myopic unwillingness to use tax reform to increase tax revenues and reduce the federal deficit, or to acknowledge that his "reform" is not an across-the-board tax cut...

...is the most troublesome in this respect...

...Dealing a fair tax reform NANCY AMIDEI PRESIDENT Reagan came back from his California ranch eager to do battle against a tax code he describes as "like a daily mugging...

...But it doesn't, in part because most people think of taxpayers and poor people as distinctly different people...