US administration alters its tax-cut pitch

Saturday was "Tax Freedom Day." Americans had to work from Jan. 1 to April 19 just to pay their 2003 taxes due to all levels of government - federal, state, local. At least that's what the conservative Tax Foundation in Washington calculates.

Middle-income Americans, getting this reading from the foundation's "tax barometer" - and perhaps having just sent a check to the Internal Revenue Service - may see themselves as terribly burdened by taxes.

But it's really not that bad.

For most Americans, the foundation's number is "a substantial exaggeration," says Isaac Shapiro, an economist at the liberal Center on Budget and Policy Priorities (CBPP) in Washington.

In fact, the federal-income-tax burden for a median-income family of four is at its lowest level since 1966, he says. The foundation's estimate in this regard is too high by about 28 percent. The overall federal-tax rate for the middle fifth of taxpayers is at its lowest level on record, with data going back to 1979.

It's notable that President Bush and administration officials, currently campaigning for a second large tax cut, aren't emphasizing the heaviness of the tax load. They instead talk about how a tax cut would stimulate the economy.

Even the Tax Foundation sees the tax burden becoming "lighter" with the tax acts of 2001 and 2002. In 2000, it took 120 days to earn enough to pay all taxes. This year it takes 109 days.

For administration officials to sell a tax cut on grounds of a severe tax burden, when taxes as a proportion of total income are already declining, would "undercut their case at a time of war, at a time of growing budget deficits, at a time of other demands on government," says Mr. Shapiro.

Victory in Iraq has enhanced President Bush's popularity. Still, his tax-cut proposal gets a much lower rating in polls than does the president himself.

In its calculation, the Tax Foundation estimates the entire tax burden as a percentage of all income. It comes up with an average for all taxpayers.

This technique has a statistical problem. Because the federal tax system taxes the rich more than the poor, and because higher-income taxpayers have been receiving a larger proportion of total US income in the past decade or so, this "inflates" the amount paid by middle-income taxpayers.

The foundation finds that federal taxes on average will equal 20.3 percent of income this year. Yet the Joint Committee on Taxation of Congress estimates middle-income families will pay only 14.8 percent.

Federal Reserve Chairman Alan Greenspan indirectly criticized the foundation's methodology in a congressional hearing last year. "You can't use" this measure, he said, because the tax burden includes taxes on capital gains, but the income measure doesn't include the capital gains themselves.

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