ustxtxb_obs_1994_09_30_50_00023-00000_000.pdf

Phil Gramm FILE PHOTO AFTERWORD Gramm’s Numbers Scam BY ROBERT KUTTNER VERY NOW. AND AGAIN a politi cian offers an insight that is uninten tionally revealing. Consider this gem from Phil Gramm, the Republican senator from Texas, during the Senate’s debate on health reform. “In 1950 the average American family with two children sent one out of every 50 dollars it earned to Washington, D.C.,” Gramm declared in the August 11 floor debate. “Today that same family sends one out of every four dollars it earns to Washington.” Gramm went on to warn that “under the Mitchell bill, in 10 years that same family would send one out of every three dollars it earns.” Is any of this true? As James Thurber once wrote \(and Casey look it up. According to IRS data, Gramm’s basic assertion about rising tax burdens on working families is exaggerated but in the right ballpark. The reason for the escalating tax load on the middle class, however, would probably appall the conservative Texas senator. The main culprit is a shift in who pays the taxes, not an escalation of spending. Here are the actual statistics: In 1950, the median-income family of four sent about 6 percent of its income to the federal government. That’s one dollar in 17, not one dollar in 50, as Gramm claims, but it’s still a lot less than today. Gramm is almost right that the average such family now sends Washington about one dollar in fouractually 23.6 percent of income. Gramm, who relied on calculations by the Heritage Foundation, understates the tax burden of 1950, apparently by leaving out some social insurance taxes. Personal income taxes in that year for the average family of four equaled roughly 3 percent of Robert Kuttner of Boston is editor of The American Prospect. This column originally appeared in the Boston Globe. income; social insurance taxes added another 3 percent. Even so, it is stunning to appreciate that the median-income family pays almost four times the relative tax burden in 1994 that it paid in 1950. Why have taxes on the middle class risen so dramatically? Sen. Gramm, battling to defeat expanded health coverage, would have us believe that the main culprit is goVernment spending. But guess what? Total federal tax receipts equaled 15.4 percent of the total economic output in 1950, compared with 18.9 percent today. In other words, the overall tax load went up by 22 percent, while the tax load on the middle-class family went up by almost 400 percent. How can that be? The explanation is simple: Taxes were a lot more progressive in 1950. For one thing, the top marginal rate on very rich people back then was 91 percent era low of 28 percent. In 1993 the Democrats restored some progressivity, raising the top rate to 39.6 percentstill much lower than in 1950. A flatter rate schedule means a heavier load on the middle class. Second, corporate income taxes paid more of the freight in 1950-26.5 percent. Today corporations account for just 10.5 percent. Third, Social Security taxes are way up from 3 percent of taxable income in 1950 to 15.3 percent today. The original Social Se curity plan envisioned financing one-third of costs from general revenues. But the final 1935 Social Security Act relied entirely on payroll taxes. And as the’ population has aged and Social Security has expanded, payroll taxesthe most regressive taxes of allhave borne the entire cost. It’s true that more of our total national product is channeled through the federal government today. But that increase is entirely in Social Security and Medicaretwo overwhelmingly popular programs. Total federal taxes other than social insurance taxes have actually declined from 14.5 percent of total economic output in 1950 to 12.4 percent today. And the ratio of government employees to total population is also smaller today than in 1950. So unless we want drastic cuts in Social Security and Medicare, the remedy is simple, Sen. Gramm. Restore more progressivity to taxes: Raise the rate on millionaires. Restore the corporate income tax. Get rid of loopholes for the well-off. Cut payroll taxes on the working middle class. But somehow that doesn’t sound like a program Gramm would embrace. . “Of course taxes have gone up on average families,” says Robert McIntyre, director of Citizens for Tax Justice, “but that’s because people like Phil Gramm keep shifting the burden away from big business and wealthy individuals onto the middle class.” A final correction: Gramm is way off the markeven off the wallin his characterization of the Mitchell bill. The Mitchell health reform bill would raise taxes, mostly on tobacco and on insurance premiums, by an average of $20 billion a year. That’s less than one-fourth of 1 percentage point of total national income. But heck, if you’re going to cook statis tics, you might as well do them up brown. And that’s how chef Gramm cooks them. This man, incidentally, is said to be run ning for president. Let the buyer beware. 0 THE TEXAS. OBSERVER 23