America's tax burden lightens
Few feel overjoyed as April 17 nears, but most people are paying less on their 1040s than in 1981.
Few people love taxes, but as 1040s come due Monday, Americans may be getting a better deal than they realize.
For most taxpayers - middle income and low income - the share sent to Uncle Sam has fallen in recent years.
In fact, for some Americans, tax rates are the lowest since bell bottoms were in fashion - their first time around.
Consider the archetypal median-income couple with two children: They will owe less income tax, at 7.5 percent of their income, than in any year since 1965, according to a study released this week by the Center on Budget and Policy Priorities in Washington.
"Everybody except the rich are paying less than what they would have ... and they are still getting from government what they want," says Bob McIntyre, director of Citizens for Tax Justice, a Washington think tank. "No wonder we are all happy."
Maybe not the growing legions of tech-stock day traders or recipients of dotcom stock options. Many of them owe extra this year - a key factor behind the growing budget surplus in Washington.
In all, Washington will reap almost $1 trillion in individual income-tax revenues from 123 million filers.
Yet this is happening as the one-fifth of taxpayers squarely in the middle of the income ladder pay just 5.4 percent of their income on this year's Form 1040, down from a peak of 8.3 percent in 1981, according to the Congressional Budget Office (CBO).
"Compared to European countries, we have a good deal in this country," says Akosh Chernush, a taxpayer sitting in the drab, windowless waiting area of an H&R Block tax office in Washington. "We have low taxes."
In fact, when the CBO factors in state and local taxes as well as miscellaneous other federal levies, the total tax burden on middle-income families is about 29 percent of income - a considerably smaller proportion than in other industrial nations, except perhaps Japan.
Still, many Americans are not overjoyed about what they owe.
"Since I haven't been working for years, I have a smaller amount of money and still have to share it with the government. This is too much," says Virginia, a retiree sitting in the same H&R Block waiting room, who declined to give her last name.
Riding on such sentiments, the House of Representatives was scheduled to vote yesterday on a Republican-sponsored bill that would end the current individual income-tax system and the Internal Revenue Service by 2004.
The measure is largely symbolic. (A similar one the House passed in 1998 was not even taken up in the Senate.) And the government would still need revenue - perhaps from a flat income tax or a national sales tax.
But the bill does show a yearning to cut through the complexity of the current tax code - a complexity that may leave many feeling their tax burden is heavier than it really is.
Stephanie, a government employee, guesses at first that she's paying 27 percent of her income in taxes. But after glancing over her forms, she reckons the toll is "more like 20 percent. That's a lot better."
Actually, the tab is probably even less if her total income, not just taxable income after various deductions and exemptions, is taken into account.
The more-than-4 million taxpayers who do their taxes using the popular TurboTax software may face a similar statistical half-truth when the program tells them their "effective tax rate."
The TurboTax number, to economists, is too large. It divides taxes paid by taxable income, not by the larger "adjusted gross income," or the even larger number including nontaxable income from municipal bonds or Social Security.
Using the TurboTax measure, an increase in the personal exemption would increase the tax burden, notes Charles Davenport, a tax expert at Rutgers University in New Brunswick, N.J.
Yet even as some economists urge Americans to recognize their lighter burden, by one measure it is growing.
Federal taxes as a proportion of US economic output have risen slightly - to about 20 percent last year - despite falling taxes for most Americans. The reason, experts say, is that the rich are paying more in taxes.
A 1993 tax bill raised the top rates for the wealthy to 39.6 percent. At least as important, executives and other investors have been reaping huge sums in salaries, options, and stock capital gains.
Rising stock and property values helped boost national wealth to $37 trillion last year, up from $22 trillion in 1992, Mr. Davenport notes. "There has never been anything like it in the history of the country."
When the most prosperous Americans sell stock - as many have in the volatile market of recent weeks - gains are taxed at 20 percent, or as high as 39.6 percent for short-term profits. Capital-gains realizations tripled between 1994 and 1998.
* Neil Irwin contributed to this report from Washington.
(c) Copyright 2000. The Christian Science Publishing Society