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Tax Overhaul Legislation

September 22, 1986

I am concerned that the new tax reform legislature will end up being the "tax unfairness act." My concern stems from the fact that the proposed act is essentially trying to accomplish three goals that cannot help but increase the tax burden on white and blue collar workers.

The first goal is to create a law that will be revenue neutral--the government will get the same amount of tax dollars from the American people, only the source will change. The second goal is to reduce and simplify the tax rate structure. As a consequence, the tax rate for those in the upper income brackets will be reduced from 50% to 28% and the very poor will be eliminated from the tax rolls. Since the results of the first two goals are in conflict, the third goal is to find "new sources" of revenue.

In finding new sources of revenue, Congress will eliminate numerous deductions, many of which are beneficial to white and blue collar workers. Congress also decided to tax corporations in a "fairer" way. As many businessmen know, the buck does not stop at the corporate level. To the extent that the cost of goods and services, including the federal income tax, can be shifted to the consumer, corporations will do so. To the extent that the corporations sells essential goods and/or services, the more likely it will be able to increase the price to its consumers.

If the oil and gas companies must pay a tax, then the consumers of oil and gas will pay more. Because many essential goods and services are purchased and needed in amounts that are unrelated to income (e.g. many blue collar workers spend more on automobile gasoline than the wealthy because they live farther from work), it is quite likely that white and blue collar workers will carry more of the corporate tax burden.

Through either the elimination or decrease in individual deductions and by an expected increase in the price of essential goods and services, the working American will now carry an even larger percentage of a continuing and growing tax burden.

By way of a concluding example, I was recently told by a lawyer for a famous movie actor that his client was so happy with the new tax proposal that he was thinking of becoming a Republican. The lawyer informed me that last year his client, who made $9 million, had paid almost $4.5 million in taxes. Under the proposed law, his client would have paid only $2.8 million in taxes. The fact remains that someone is going to pay the $1.7 million liability that this wealthy actor no longer will be required to pay. I doubt that it will be "rich" corporations. I do believe it will be the working middle-class American.

JAMES P. HERZOG

Encino

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