Tax Reform in a Nasty Universe

...When they can, corporations will raise prices to replenish after tax profits...

...For the middle class the outcome is least simple...

...If any politician has thus designated the middle class, his judicious words have escaped general notice...

...Accordingly, to tax a corporation is to make some collection of individuals foot the bill...

...This is a sophisticated version of Jeremy Bentham's insight that the more we possess of any commodity including money, the less pleasure an additional unit of it yields and the smaller the pain subtraction of a unit inflicts...

...A great many low and moderate income Americans now pay higher percentages of their income to the Federal government than their prosperous neighbors...

...Hordes of lobbyists have apparently retreated in well-paid chagrin to prepare last-ditch assaults upon the Congressional conference committee now hammering out the final bill...

...Should the talented alumni of our leading law and business schools therefore divert their sharp intellects from tax and estate planning to more constructive endeavors , improvements in economic productivity, competitiveness in world markets, and our balance of payments would be added benefits from Congress' labors...

...The Senate bill would reduce that liability to $266, an 80 per cent shrinkage in the family's tax burden and a $ 1,100 improvement in its financial situation...

...The moral may be that in American politics progress is more frequently accidental or inadvertent than carefully planned and clearly debated...

...Nirvana...

...It was Richard Nixon, of all people, who proposed so enlightened a welfare reform proposal that liberals rejected it out of hand as tainted by the identity of its author...

...Friends of the hardworking poor might be tempted to enlist in Packwood's army out of gratitude for this tribute to equity alone...

...That such an achievement should be possible within the context of the most reactionary Presidency since Calvin Coolidge's regime is merely one more oddity of American political culture...

...The way to avoid higher prices is to save, an option open only to a minority...

...its chairman, and Senator Bob Packwood (R-Ore...

...the House cosponsor of the Senator's scheme, won places at the drafting table...

...Upstaging seniors in service, Bradley and Representative Richard Gephardt (D-Mo...

...Not quite...

...By every account, Ron has never gotten over the 90 per cent marginal bite on his income as a minor movie star...

...Y.) in his current neoliberal phase and Senator Alfonse D'Amato (R-N...

...A trifle over one third of all families, in other words, earned $35,000 or more...

...from their own supporters...

...Since little evidence presents itself for the more cheerful of these forecasts, 1 suppose it makes sense to be grateful for what Congress offers us...

...Jimmy Carter who set in motion deregulation of airlines, trucking and banking...

...Where foreign or domestic competition limits or excludes this option, managers will reduce dividends to stockholders or, as theeuphemism goes, "employment costs'' (read wages, not executive salaries and bonuses...

...Shelter beneficiaries themselves just might be willing to pay more taxes in order to gain relief from the time wasted in endless contrivances to shield income from taxes...

...Robert Greenstein's Center on Budget and Policy Priorities is pleased in particular about major benefits to low- and moderate-income families...

...Otherwise, the political community's excitement over the health and welfare of its middle class is as usual exaggerated...

...Moreover, retention of the House's minimum tax will extract some revenue even from wealthy investors in tax exempt securities...

...Liberals should at least realize how little that is...

...Y.) on the far Right have joined the applause...

...But here caution is essential...

...Okay...

...Neither the Senate nor the more generous House bill translates into really substantial tax savings for the vast majority who are not rich and not poor...

...An additional 18.4 per cent fell between $35,000-$49,000...

...What delights him most is its contemplated top rate of 27 per cent applicable to individual taxpayers...

...A large percentage of tax shelters, legal under the present tax code, hinge upon the conversion of income from wages and salaries into capital gains assessed at lower rates...

...Robert Mclntyre's Citizens for Tax Justice, a Naderite group, favors major elements of both the House and Senate versions of tax revison...

...The weakness of the labor movement, the antiunion stance of the Reagan Administration, and persistent high unemployment also combine to make it probable that corporations will extract concessions from their hourly workers rather than from their investors...

...If the completed legislation retains this Senate provision and an important corollary—prohibition of the deduction of tax shelter losses from income subject to Internal Revenue Service levy—many doctors, dentists, lawyers, and top managers will end up paying more taxes at a realistic 27 per cent rate than they now do at 1986's leaky 50 per cent...

...But the committee has been carefully selected by Representative Dan Rostenkowski (D-Ill...

...Only the nai ve will underestimate the ingenuity of tax shelter wizards in the legal and accounting community...

...Even if we assume, as I did earlier, that closed loopholes, handling of capital gains like other income, and a fallback minimum tax will diminish the number of high income recipients who now pay little or no tax, there is something offensive about applying the same 27 per cent rate to $50,000 as to $500,000...

...Even Green-stein' s estimates for the most part apply to larger groups, such as the $20,000-$75,000 hordes who will enjoy tax cuts ranging between $129-5337 annually...

...No wonder that it is difficult to extract from either the House or the Senate bill a clear picture of the prospects for this soberly defined group...

...They, of course, were sponsors of rival tax measures to which the Senate proposal in particular bears more than passing resemblance...

...The Senate bill, and to a somewhat lesser extent the House alternative, also incorporates many other improvements long sought by liberals...

...There are risks to the shelter game, not least among them the possibility that the IRS will challenge a device as abusive and inflict heavy retroactive assessments and penalties...

...The polls that report general skepticism about anticipated personal gains from new tax legislation suggest that the public at large takes a sensible view...

...They will have to work harder, though, for smaller gains than those readily available today...

...I don't find the answer easy...

...Nevertheless, true believers in progressive taxation, regardless of whether they favor Congress' ultimate product, should not cheer it as a reassertion of their faith...

...In all, some 6 million families stand to benefit...

...One of the most important is the Senate's handling of capital gains as ordinary incomes...

...Never doubt their capacity to widen the smallest interstices in the new tax code into lucrative loopholes, or to exploit the inevitable ambiguities of highly technical legalese...

...So veteran liberal tax reformers like the Brookings Institution's Joseph Pech-man, who have wandered longer than Mosesint he wilderness, can reasonably hope to march into the promised land by Labor Day or soon after...

...I won't deny either that relieving the working poor of tax liability and making the affluent contribute something constitutes progress...

...In a better world, a good tax system would combine ascending rates on larger incomes with the elimination of shelters from those rates...

...According to its analysis, working poor families below the poverty line and a significant number slightly above that line will escape Federal income tax liability entirely...

...In our own nasty universe, a prudent person may conclude that the statute soon to be signed by the President with many pens is better than nothing...

...In the realm of numbers, the middle class might reasonably be said to consist of the 19 per cent in the $25,000-$34,999 bracket, plus the 10.7 percent worse off in the $20,000-$24,999 category...

...and Dwight Eisenhower who placed on the Supreme Court Earl Warren and William Brennan...

...Senator Daniel Patrick Moynihan (D-N...

...They are members of the statistical upper class...

...If the affluent actually surrender a higher percentage of their cash flow from capital gains, salaries and all other sources at lower effective tax rates than they do at higher ineffective ones, surely reasonable men and women should be gratified...

...The folks in Congress generously declare its upper limit to be $50,000, $60,000, sometimes $75,000...

...Who are they likely to be...

...It is possible, perhaps probable, that the equity gain at the lower end of the income scale will be matched by similar improvement at the top...

...The retention of mortgage interest deductibility, even for second homes, continues to subsidize homeowners and penalize renters...

...Congress' most prominent former athletes, New Jersey's Democratic Senator Bill Bradley and New York's Republican Representative Jack Kemp, meanwhile modestly accept acclaim as prophets whose time has come...

...The numbers are sobering...

...Under current law, for example, a family of four headed by a married couple, at 1988's projected poverty line income of $12,368, would pay $1,356 in combined payroll and Federal income taxes—or 11 per cent of its meager earnings...

...Senator Packwood estimates that his chamber's bill contains $40 billion of tax preferences for timber, oil and gas, and other special interests, not to mention transition rules written to favor specific corporations, wealthy families, professional partnerships, and other influential campaign contributors...

...Should I urge my liberal west side of Manhattan Congressman, Theodore Weiss, to vote yes or no...

...It should hurt families in the attractive $100,000 neighborhood less to pay $1,000 in taxes than their luckless fellow citizens lurking along the poverty line...

...When Friedmanites are not inveighing against big government, they are teaching students in price theory courses about one of economics' sacred principles—diminishing marginal utility...

...I consider most unfortunate the damage inflicted upon the concept of progressivity...

...Higher prices have a regressive impact, because the lower one's income the more of it one spends on the necessities of life...

...The new arrangements will almost certainly be less scandalous than the old ones...

...Standard economic theory justifies collecting from the prosperous not simply larger dollar amounts but higher percentages of their income as well...

...Among the celebrants are liberal lobbyists...

...If we expect the impact of Ronald Reagan to linger for the rest of the century and anticipate in 1988 a choice between a conservative Republican and a neoliberal Democrat, I suppose my advice would be to hold your nose and vote yes...

...In short, the working poor are like-lytolosesomeoftheir promised tax benefits in the form of higher prices, lower wages, or a malignant combination of the two...

...To begin with, political and statistical definitions of this class diverge widely...

...Further, amazingly little attention has been paid to the equity consequences of shifting $ 100 billion (the Senate number) or $ 140 billion (the House total) of personal income taxes to corporations...

...The political middle class will keep its cherished mortgage interest deductions and, I suspect, its IRAs as well...

...There are additional good reasons for reservation, too...

...Elimination of the deductibility for interest on car and appliance loans seems utterly unjustified so long as middle income and rich homeowners, the principal beneficiaries of the mortgage interest scam, remain favored...

...Still, Congress appears to be on the very brink of improving the efficiency and the equity of a tax code memorably attacked by Jimmy Carter as a disgrace to the human race...

...Granted, a proportional tax is preferable to a regressive one...

...At first glance, the end of the investment tax credit and the imposition of a stiff minimum levy on corporations that have in some cases been paying no taxes—or, as in the instance of General Electric, have been collecting Treasury tax subsidies—appear to spell the end of yet another scandal...

...Corporations are legal entities...

...On more optimistic assumptions, such as Arthur Schlesing-er's speculation that the country is due for a cyclical liberal revival, my counsel would be to vote no and wait for the moment that a liberal president, supported by a friendly Congress, designs a truly progressive tax code...

...People pay taxes...

...In 1984, only 15.8 per cent of all families registered incomes in excess of $50,000...

...Yuppies on combined incomes of $100,000 have been known in Manhattan to weep over the restrictions of living on a middle-class income...