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Online Home | Site Search | Tax News & Views |Level of Taxes Unchanged Over Two Decades, Study SaysWednesday, March 11, 1998 OnLine The typical American family pays between 26% and 29.8% of income in taxes, which has held "relatively stable" over the last two decades, the Center on Budget and Policy Priorities said March 11. "There is no evidence that tax burdens are nearly as high as some would have you believe, and taxes are not rising every year," according to the center’s Associate Director Iris Lav. The total tax burden for each family includes both the state and federal tax contribution. Lav estimated average state taxes for median income families at 10.1% by subtracting non-tax governmental receipts, such as pension contributions, from Commerce Department data on total receipts. The Congressional Budget Office estimated the 1998 federal tax at 19.7% of income for families in the middle fifth of the income distribution before the effects of the 1997 Taxpayer Relief Act are taken into effect, said Lav. The Joint Committee on Taxation staff estimates this number at 15.9%, she added. Combining the estimate on state taxes with the CBO estimate of federal taxes yields a maximum of 29.8% of family income going to taxes, while using Joint Tax Committee numbers for federal tax estimates yields a tax burden of 26%. The Tax Foundation’s November 1997 estimate of the average family’s tax contribution at 38.2% is 47% higher than the CBPP estimate of 26%, said Lav. She attributed this discrepancy to what she termed "the Tax Foundation’s poor methodology." The Tax Foundation did not exclude non-tax receipts from the Commerce Department data before calculating average state and local taxes, continued Lav. The Tax Foundation also assumed that all families paid the same percentage of income in federal corporate income taxes and estate taxes, even though the majority of these taxes are paid by the wealthiest 2% of families, Lav explained. "We stand by our numbers and our methodology," said Stephen Gold, spokesman for the Tax Foundation. "We believe this is a philosophical difference of opinion between economists," Gold added. Gold also questioned the methodology used by the Congressional Budget Office. "The methodology that we used was challenged, but the same methodology was accepted when used by the CBO," he said, adding that the numbers used by the CBO are "very outdated." No increase in 20 years The federal tax burden also is stable, said Lav. In 1979, federal taxes consumed 20% of a median family’s income. This number shrank to 19.4% in 1989, and would have risen only slightly to 19.7% in 1998 in the absence of tax cuts last year, Lav estimated. Overstating the tax burden on average families "has people asking: What am I getting?" Lav said. "People have to understand how much they’re paying, because it forms a part of their political perception and they may say we need radical change" based on incorrect numbers, she added. The current tax burden is a lot more reasonable than the Tax Foundation estimate, Lav argued. "People are getting a lot of government for what they’re paying," she said. EITC successful The Earned Income Tax Credit "lifts more children out of poverty than any other program" and "increases work effort substantially among single mothers," said CBPP Executive Director Robert Greenstein. While work participation among single women without children did not increase between 1984 and 1996, work participation among single women with children increased from 72.7% to 82.1% during that time, said Greenstein, who attributed this increase to the EITC. Current conflict over the EITC centers around "out of control costs" of the program and arguments that it is "error-ridden," said Greenstein. Last year’s Balanced Budget Act and Taxpayer Relief Act began a "battery of important changes" to resolve these problems, Greenstein said, adding that the error rate still remains too high. Opponents of the EITC who associate its problems with the Clinton administration should
remember that it began under former President Ronald Reagan and was expanded under former
President George Bush, Greenstein pointed out. Leaders should work to fix the problems
while maintaining bipartisan support for EITC, he said. |
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