wfn.org | UCC / Tax bill would worsen inequalities

[powellb@ucc.org]

United Church of Christ
In Cleveland:
Hans Holznagel
(216) 736-2214
holznagh@ucc.org

In Washington, D.C.
the Rev. Patrick W. Grace Conover
(202) 543-1517

On the World Wide Web:
http://www.ucc.org
June 20, 1997
      
Proposed U.S. tax bill would worsen inequalities, analyst says
     
      WASHINGTON, D.C. ? A national church agency's government policy
specialist says a proposed tax bill passed June 13 by the House Ways
and Means Committee would give further advantages to the rich while
increasing the already unfair tax burden on those of middle and lower
incomes.
      In a two-page analysis titled "Taxes, Inequality, Poverty," the
Rev. Patrick W. Grace Conover of the United Church of Christ's Office
for Church in Society also says the tax bill "would cause new problems
for the attempts to reduce the federal budget deficit, putting new
stress on the federal programs serving low-income people who have born
the brunt of past and current budget cuts."
      Conover says the fairness of progressive rates in federal and
state income taxes is counterbalanced by deductions, loopholes and
regressive sales and payroll taxes.  The proposed House bill would
worsen this pattern, he says.
      "If this budget-busting, inequitable tax bill is passed we will
see more years of squeezing the federal programs that serve the common
good and those in greatest need while the spiral of income inequality
is accelerated," Conover says.

                               #     #     #

         [EDITORS:  The text of Conover's analysis follows.]
                                     
Taxes, Inequality, Poverty
      
Inequality          
      The distribution of income in the United States has become
increasingly unequal over the last twenty years for which information
is available.  This reality is often overlooked when attention is
directed to the increase in mean (average) income which has steadily
increased from $37,365 in 1975 to $44,938 in 1995, in inflation
adjusted (constant) dollars.  If households are divided into 20
percent groupings (quintiles) by income, the bottom four quintiles
steadily decreased their share of total income while the top quintile
increased.
      
Percentage Share of Aggregate Income, United States, 1975-1995
      
Year   Lowest   Second   Third   Fourth   Fifth   Top 5%
1975   4.4      10.5     17.1    24.8     43.2    15.9
1980   4.3      10.3     16.9    24.9     43.7    15.8
1981   4.0      9.7      16.3    24.6     45.3    17.0
1990   3.9      9.6      15.9    24.0     46.6    18.6
1995   3.7      9.1      15.2    23.3     48.7    21.0
      
      The increasing inequality in the distribution of income of
households has meant that the overall improvement of the economy has
not significantly improved the circumstances of the lower quintiles
while sharply improving the highest.  Average income of the lowest
quintile improved in constant dollars from $8,227 in 1975 to $8,350 in
1995, in the second quintile from $19,535 in 1975 to $20,397 in 1995,
while the highest quintile improved from $80,834 in 1975 to $109,411
in 1995.
      
Poverty     
      Between 1975 and 1995 the number of people living in poverty in
the United States has increased from 25.9 million to 36.4 million,
from 12.3 percent of the population to 13.8 percent of the population. 
The 1995 figures represent an improvement from the peak year of 1993,
when 39.3 million people (15.1 %) were in poverty.  Over this period,
the percentage of people over 65 in poverty has decreased by about
one-third, while the percent of children living in poverty has
increased.   Of those living in poverty, many were in deep poverty. 
In fact the average family living in poverty in 1995 had an income
$6,038 below their poverty guideline.  Nearly two-fifths (38 percent)
of all people living in poverty had incomes lower that half the
poverty guideline.
      
Taxes
      One way the United States could create more equity in income
distribution is through taxes. It is widely believed that taxes
currently operate to create more equality, probably because federal
and state income taxes have progressive tax rates.  But when
deductions and loop holes are considered, the progressive tax rates
are partly neutralized.  Furthermore, sales taxes and payroll taxes
are regressive, balancing off any advantages for lower income people
in the tax code.  
      
      The Seventh General Synod of the United Church of Christ, in
1969, supported the fairness of progressive taxation in a
pronouncement on Sharing the Cost of Government Fairly.  In a section
titled "Distributive Justice" the pronouncement says: 
      
      "Taxes should fall on taxpayers in accordance with their ability
to pay.  While income is not the only element in a measure of ability
to pay, it is proper for individuals with higher incomes to be taxed
at successively higher rates, other things being equal."
      
      In radical disregard for such principles of distributive
justice, the tax legislation passed by the House Ways and Means
Committee on June 13, 1997 would dramatically increase income
inequality.  Furthermore, the tax bill would cause new problems for
the attempts to reduce the federal budget deficit, putting new stress
on the federal programs serving low-income people which have born the
brunt of past and current budget cuts.  The following table shows how
the total value of the tax breaks are distributed.  
      
Ways and Means Tax Plan Distribution of Benefits
                                
         Lowest   Second   Third   Fourth   Next 15   Next 4   Top 1
Tax Cut  Increase Increase 3.9 %   13.4%    26.8%     18.4%    38.1%
      
      The 40 percent of families with lowest incomes are projected to
have small increases in taxes because of increases in excise taxes. 
About half of the $24,000 a year average tax break for the wealthiest
one percent of individuals and families comes from changes in the
Capital Gains Tax.  Reductions in the estate tax, though smaller in
total, are almost entirely focused on the top 1 percent.  Since the
Ways and Means Committee has attempted to hide the regressivity of its
tax proposal by refusing to follow the guidelines of the Joint
Committee on Taxation's Methodology and Issues in Measuring Changes in
the Distribution of Tax Burdens, it is critical to share this
information as broadly and quickly as possible.
      
      Though the tax bill has been advertised as costing only $85
billion over five years, it will cost $75 billion a year when fully
phased in.  In comparison, a federal budget deficit of $106 billion in
1996 is being used as justification to cut Medicare by $115 billion
over five years with little regard for health care policy.  If this
budget busting, inequitable, tax bill is passed we will see more years
of squeezing the federal programs that serve the common good and those
in greatest need while the spiral of income inequality is accelerated.
      
Written by Pat Conover, Office for Church in Society, United Church of
Christ, June 1997
      
1.  Figures on inequality of income drawn from "Money Income in the
United States:  1995," Bureau of the Census, Current Population
Reports

2.  Figures on poverty drawn from "Poverty in the United States: 
1995," Bureau of the Census, Current Population Reports

3.  Figures on taxation are drawn from work of the citizens for Tax
Justice using the Institute on Taxation and Economic Policy's
Microsimulation Tax Model, based on a very large sample of tax
returns, census data, and other factors, a model similar to the one
used by the Joint Committee on Taxation.