Tax Issues

A Tax Cut For Those Who Pay Income Taxes

President Ronald Reagan's tax philosophy was that tax cuts should go to everyone, including the rich. He opposed targeted tax cuts that reward some taxpayers at the expense of others, and favored across-the-board tax rate reductions that benefit all taxpayers in direct proportion to the taxes they pay.

Now Republicans are pushing a 10 percent across-the-board tax rate reduction, instead of the gimmicky child credit that was the centerpiece of the 1997 legislation. However, some Republicans are already backing away from this plan, fearing liberal attacks that it only benefits the "rich." Predictably, the leftist Citizens for Tax Justice issued a press release on the very day the Republican plan was introduced showing that those with high incomes would indeed get a bigger tax cut than those with modest incomes.

But according to Congress's Joint Committee on Taxation, those with incomes below $20,000 pay no federal income taxes at all now, and in fact have a negative tax liability; that is, they receive a refund from the government even though they pay no taxes. This is mainly due to the Earned Income Tax Credit. There is no way to cut taxes for such people except by sending them bigger government checks.

• Those in the bottom half of the income distribution, with incomes below $23,160, paid just 4.34 percent of all federal income taxes in 1996 (see figure).

• By contrast, those with incomes in the top 25 percent, with incomes above $45,833, paid more than 81 percent of all income taxes.

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