Tax Issues

Barriers To A Tax Cut

One consequence of the long U.S. economic expansion is that federal taxes have climbed to record levels.

  • In the third quarter of 1998, total federal receipts equaled 21.8 percent of gross domestic product -- the highest level recorded in American history.

  • The average household paid 24.9 percent of its income in combined federal, state and local taxes in 1997 -- up from 21.8 percent in 1983.

  • Of that amount, federal taxes consumed 14.9 percent of household income, or $9,445 on average -- more than twice what the average household paid in 1985.

  • According to the Treasury Department, a four-person family with the median household income of $54,900 will pay 30.3 percent of each additional dollar it earns to the federal government this year in the form of income and payroll taxes -- compared to the 19 percent marginal tax rate such families paid in the early 1970s.

Tax experts speculate that there are several reasons President Clinton is opting for narrow, targeted tax credits rather than a broad, across-the-board tax cut.

  • First, the so-called "pay-go" provision of the 1997 budget law -- which mandates that all tax cuts be offset either by increases in other taxes or cuts in entitlement programs -- make it exceedingly difficult to cut taxes.

  • The President may fear that any small cut he proposed would be vastly enlarged by congressional Republicans.

  • Finally, he is boxed in by his demand that the surplus first be used to "save" Social Security.

Nevertheless, tax-cut advocates contend that a large cut now would not only be sound economics, but good politics as well.

Source: Bruce Bartlett (senior fellow National Center for Policy Analysis), "Why Won't Clinton Cut Taxes?" New York Times, January 19, 1999.

For more on Current Tax Legislation http://www.ncpa.org/pi/congress/cong2.html

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