The Biggest Tax Increase in History
Republicans say that Bill
Clinton imposed the biggest tax increase in American history. Democrats
disagree, saying Dole himself is responsible for the biggest tax increase in
history: a massive tax bill he engineered as Senate Finance Committee chairman
in 1982. Who's right? The answer turns on so many metaphysical questions as to
be nearly meaningless. Nevertheless, the issue will be central to the fall
campaign.
The Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA) fashioned by Dole and the
Omnibus Budget Reconciliation Act of 1993 (OBRA-93) pushed through
Congress by Clinton were projected, at the time of passage, to raise almost
exactly the same amounts of revenue. The Dole measure was estimated by the
Joint Committee on Taxation to increase the Treasury's take over the next five
years by $235 billion. The revenue parts of Clinton's bill were projected to
produce $241 billion over five years. But these numbers need to be
adjusted.
Inflation between 1982 and 1993, as measured by the GDP deflator, eroded
the value of the dollar by almost a third. Measured in 1982 dollars, Clinton's
tax increase would be worth only about $165 billion--$70 billion less than
Dole's.
On the other hand, most of Dole's tax increase was actually
the partial repeal of future tax cuts that had been enacted in 1981 but
had not yet taken place. Despite Dole's bill, taxpayers received more than $375
billion in tax cuts over the following three years. (This did not deter
Dole's supply-side critics, led by Jack Kemp, from characterizing his bill as a
record-setting tax boost.) Whether repeal of a future tax cut counts as a tax
increase is a metaphysical question. If the answer is "no," Clinton's tax
increase is larger.
Republicans charge that Clinton promised a middle-class tax cut and
delivered a tax increase instead. That is not quite right. A promise to
increase taxes on the affluent was, in fact, a central feature of
Clinton's 1992 campaign. And almost two-thirds (63 percent) of the projected
revenues in Clinton's tax increase hit high-income couples (over $140,000 a
year) and individuals (over $115,000). Most of this came from an increase in
the top income-tax rate. Another 15 percent of Clinton's revenue came from
tax increases on business , primarily a rise in the corporate income-tax
rate and new limits on the deduction for entertainment expenses. These also
were campaign promises made and kept, not broken. (By interesting contrast, a
full 70 percent of Dole's increased revenues came from business, primarily in
the form of closing loopholes and ending special favors included in the 1981
tax-cut bill. Clinton's bill, while raising business taxes somewhat overall,
introduced a variety of special business preferences.)
Clinton also reduced the income-tax exclusion for Social
Security payments to retirees with incomes above $44,000 per couple
($34,000 for individuals). Whether increasing the portion of a government
benefit check that the government reclaims in taxes amounts to a payment
reduction or a tax increase is another metaphysical question. So is the issue
of whether a couple earning $44,000--about one-and-a-half times the median
family income--in retirement counts as "affluent."
Clinton's 1993 bill
increased the Earned Income Tax Credit for millions of low-income
workers. Clintonites wish to count this as a Clinton tax cut . The EITC
is supposed to help relieve the burden of payroll taxes (Social Security,
Medicare), and is "refundable" (paid in cash) to workers who owe less in income
tax than the tax credit is worth. Whether a government check intended to
mitigate a tax burden amounts to a tax cut or a spending increase is yet
another metaphysical question.
The
only part of the 1993 tax bill that directly affected middle-income families
was a 4.3-cent-per-gallon boost in the gasoline tax . This cost the
average family $45 a year and accounted for less than 10 percent of the total
revenue raised. Nevertheless, it was a middle-class tax increase, not a
middle-class tax cut. (Although Dole's 1982 act didn't raise gas taxes, only a
few months later, Congress enacted a 5-cent-a-gallon increase in the gas tax
with Dole's and President Reagan's approval.)
One last metaphysical question. Almost $50 billion of
Dole's 1982 projected revenue was supposed to come from cracking down on tax
cheats , by adding staff to the IRS, and requiring financial institutions to
withhold interest and dividends the way employers withhold wages. (This
provision was repealed the next year, before it could take effect.) Is getting
people to pay taxes they already owe but would otherwise escape a "tax
increase"? In 1982, Bob Dole probably would have said "of course not." In 1996,
though, Dole has called the IRS an "intrusive, oppressive presence in American
life," and has pledged to cut its staff of investigators. Clinton, meanwhile,
has already announced that 5,000 IRS jobs will be eliminated, with more layoffs
to come.
Campaign assertions about
how much the average family's taxes have increased under Clinton should
be regarded with suspicion. (a) Averages obscure the fact that most of
Clinton's tax increase did fall on the affluent. The typical middle-class
family paid only the new gas tax. (b) Most of the increased tax revenue from
individuals reflects higher income, not higher tax rates. (c) As a share of
GDP, government now takes 40 cents on the dollar. Rep. Susan Molinari used this
figure in her Republican Convention keynote address to illustrate the burden of
Clinton's tax increase. But the increase in this figure is due entirely to the
rise in state and local taxes. As a share of GDP, federal taxes have been
roughly stable under Clinton.
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