Different shoulder taking US tax burden

The Economic Recovery Tax Act is long, complex, and difficult to read. Its main theme is readily apparent. Take some taxes off the back of the American economy, as supply- side theorists advocate, and it will start moving forward at a steady pace once again.

And when the unloading is over, American business will be left shouldering a much smaller tax burden.

"We're obviously headed towards the elimination of taxes on all income except wage and salary," says Jay Angoff, an attorney for the Ralph Nader group Citizen's Watch. "Corporations have paid less and less. All [this bill] does is dramatically accelerate a long-term trend."

In the mid 1950s the corporate income tax accounted for around 30 percent of all tax revenues. By 1983, according to Treasury Department estimates, this will have shrunk to 7 percent.

The Reagan bill provides for some direct corporate income cuts at the low end of the scale. Corporate taxable income under $50,000 will get a 1 percent tax cut in 1982, and another 1 percent reduction in 1983.

This relief, aimed at small business, may be more symbol than substance.

"It really doesn't keep pace with inflation," says David Tonneson, tax committee chairman for the Small Business Association of New England.

The major lifting of the corporate tax burden comes through more liberal depreciation rules, which will greatly reduce corporate taxable income.

Faster write-offs for new plant and equipment will cost the Treasury $144.2 billion in lost revenues through 1986, according to administration figures.

This is fair, say backers of the move, because the corporate income tax represents double taxation. First, profits are taxed at the corporate rate. Then, they're distributed to shareholders as dividends, and taxed yet again, at personal income tax rates.

So the government is saying, "We agree. In the past we've treated the corporation, for tax purposes, like it was an entity unto itself. This is actually misleading, as it is a bunch of stockholders banded together. For the most part, we'll now only tax this money once."

The tax code has historically been seen as a tool for redistributing money from the wealthy to those in need. The more money you make, the larger percentage of it you pay in taxes.

This tax bill takes a less confiscatory attitude toward large lumps of wealth.

The top tax rate of "unearned" income -- dividends, interest, etc. -- has been reduced from 70 percent to 50 percent. The top rate for "earned" income -- wages and salaries -- remains 50 percent. (During the early 1960s, the top rate on earned income was 91 percent.)

In effect, the government now says, "All right, we're not going to pick on you people who get a lot of money from dividends and bonds. Just because you didn't work eight hours in a steel mill doesn't mean you didn't earn it. We won't distinguish between passive, 'unearned' income, and active, 'earned' income."

Hefty agglomerations of assets can also be passed down though generations more easily. Once, the estate tax was a primary redistributive tool. But over the years it has been pared away to almost nothing. Under the Reagan bill, any estate under $600,000 can be inherited tax free from 1985 on. The Joint Committee on Taxation estimates only 0.3 percent of estates will now owe federal tax.

Uncle Sam is saying, "It's not our business if you inherit a lot of money. We can't increase social and economic mobility in America by keeping some children from starting out with inherited wealth."

So some provisions in the Recovery Tax Act provide for making the tax code "flatter," less of a redistributive tool, for individual taxpayers. At the same time the individual will be shouldering more of America's tax burden, as dependence on the corporate income tax is lessened.

Does the whole tax bill, then, move toward what President Reagan called for early in his term -- a neutral tax code, one that does not "effect social change"?

Not wholly. A few overtly liberal provisions managed to find their way in, like gatecrashers at a fancy ball.

* Child-care credits. Working couples can currently write off part of their child-care expenses agianst their income tax. Under the tax bill, 30 percent of such expenses can be written off for those with adjusted gross incomes under $10 ,000. As your income goes up, this percentage gradually drops, until it bottoms out at 20 percent when income is $30,000 or above.

* Adoption expense credits. Couples can now deduct up to $1,500 for qualified adoption expenses.

* Targeted jot tax credits. Businessess who hire people from certain targeted groups, such as AFDC mothers, received tax credits under certain circumstances. This law was scheduled to expire on Dec. 31, but the tax act extended it through Jan. 1, 1983.

Some tax accountants say the certification procedures required for employers to get their job tax credit are too involved. Extending the credit won't help that many more people get jobs, these accountants claim.

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