Balance federal benefits and taxes

THERE now seems little doubt that Congress, the White House, and the American people will have to resolve a major policy question: Namely, how to balance federal benefits (particularly middle-class entitlement programs) and US tax policy in such a way as to ensure economic growth - yet in a way that preserves a sense of fairness for all Americans?

The rationale for a major restructuring of both entitlement programs and tax policies is underscored by a new analysis released this week by the Congressional Budget Office (CBO). The study examined the cumulative impact of budget and tax changes that have been enacted since January 1981.

What the highly regarded CBO found is that the changes have tended to work against low-income persons and in favor of the well-to-do.

The growing thinking now taking place about entitlement and tax policies needs to be more publicly debated by the Democratic presidential candidates as well as by the White House - rather than being confined largely within political circles, as is currently the case.

* A number of bills have now been introduced in Congress that would substantially simplify the US tax code, mainly by moving from the current progressive income tax system, with all its built-in deductions and exemptions, to a so-called flat tax that would impose a uniform tax rate on individuals. Current deductions might be eliminated. Mr. Reagan has said that tax reform will be a major element of his second term.

* Meantime, a consensus appears to be developing among many members of Congress and private economists that federal entitlement programs such as social-security benefits, veterans programs, college aid, credit programs, and agricultural subsidies will have to be significantly reshaped (and in some cases , scrapped), if the massive federal budget deficits projected in the range of $ 200 billion and more annually are to be brought under control. Further, the word now making the rounds in Washington is that the Reagan administration - again, assuming Mr. Reagan is returned to office - will propose major changes in such programs early next year.

Democratic candidates Mondale, Hart, and Jackson, moreover, have all said that they would reshape current tax and entitlement programs.

The point here is that there is now growing momentum for making changes in tax and entitlement programs, no matter which party gains the White House.

According to the CBO, the effect of the recent budget cuts and tax changes on families with annual incomes of less than $10,000 has been a net loss of $390. For families with incomes of $20,000 to $40,000, there has been a net gain of $1 ,010; for families with incomes of $40,000 to $80,000, a net gain of $2,900; for families with incomes of $80,000 or more, a net gain of $8,270.

Most lawmakers believe that further cuts in programs pertaining to the poor are unlikely.

That means that future budget cuts will have to come from programs touching on the middle class.

Yet, the middleclass also tends to have the most financial indebtedness of all parts of the American electorate - while also proportionately paying the most in federal income taxes.

For such reasons, the nation's political leadership needs to be more forthcoming with the public than it has been about exactly how it plans to go about cutting entitlement programs and changing the tax code.

You've read  of  free articles. Subscribe to continue.
QR Code to Balance federal benefits and taxes
Read this article in
QR Code to Subscription page
Start your subscription today