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Break for the Poor

June 22, 1986

Some oxen get gored under the tax-revision bill expected to pass the U.S. Senate this week. A few calves get fatted. Many taxpayers who have heard about average tax cuts may discover that they are not average people and will have to pay more. There is a legitimate question of what effect the bill will have on the economy for the next five or 10 years. No one really knows.

But there is a single fact that makes final passage of tax reform far more important to the nation than investment tax credits or business expense deductions: Both the Senate and House of Representatives versions of the plan provide significant tax relief to those who need it most. They are the working poor of America whose lives exist within shameful proximity of the poverty line. The tax bill, in fact, may be the most important and moral social-welfare program to pass the American Congress in decades.

For all the perceived evils of the current tax system, the worst is that a family at the poverty level of $12,368 (using projected 1988 figures) should have to pay $1,356, or 11% of its income, in taxes. No one planned it that way. It just happened under a complex and cumbersome system that failed to adjust to the unanticipated vagaries of the American economy. Under the Senate bill, the poverty-level family's tax bill would be trimmed to $266. That would constitute fairness in the best sense of the word for millions of Americans who have borne the brunt of federal budget cuts without seeing any of the promised benefits of supply side or trickle-down economics.

Tax reform is not yet an absolute certainty. After Senate passage, important issues will have to be resolved between the House and Senate versions of the bill. The House-Senate conference committee must consider whether two personal-income brackets, with a top rate of 27%, actually provide fairness to middle-income wage earners who bear the brunt of government finance. The questions of individual retirement accounts and deduction of consumer interest must be settled, with forceful arguments to be made on both sides of those issues. The system still seems to be unduly harsh on many single taxpayers and some two-earner families, and unduly generous with the very wealthy.

But the important point now is that the parameters have been set. There is a House bill, and very soon there will be a Senate bill. Both constitute reasonable improvement over the present system. They do reflect different political and economic approaches, but that is precisely the process that the Constitutional Convention envisioned 199 years ago when it invented Congress. In some cases reasonable and sensible compromise can be achieved by employing that fine old American tradition of splitting the difference. In others the force of persuasion and reason by this senator or that representative may carry the argument. Here and there a special break will slip through, but no one said that democracy was perfect.

Tax reform never would have gotten this far without the personal commitment and exercise of political will by such leaders as Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee; Senate Majority Leader Bob Dole (R-Kan.), and Finance Committee Chairman Bob Packwood (R-Ore.). It was not an understatement when Sen. Edward M. Kennedy (D-Mass.) described the forging of the Senate plan as "an extraordinary exercise of intellectual ability and practical political achievement."

As the final chapter of Tax Reform 1986 is written, there will be much talk about the goring of the oxen and the fattening of some calves, much wailing about corporate tax breaks won or lost. But this chapter should be dedicated to the millions of less fortunate, hard-working Americans who may grimace at the big federal tax bite taken from their weekly paychecks but never complain. It is their turn to be winners.

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