Few Consider Middle-Class Tax Cut a Good Idea

Article excerpt

WASHINGTON _ The Republicans have their proposal for a middle-class tax cut. Not to be one-upped, Rep. Richard Gephardt of Missouri, the House Democratic leader, offered his plan Tuesday. President Clinton will probably put forward his own tax cut for the middle class in a speech tonight.

The proposals have these things in common: They are frightfully expensive in terms of what they would cost the government in lost revenue. They spread the money so thin that they offer middle-income families less than what it costs to buy a pizza a week. And most economists, regardless of their politics or ideology, view such tax cuts as a lousy idea.

The last is not surprising. Proposals for a middle-class tax cut are not about the economy. They are all about political positioning.

Take Gephardt's plan, which would reduce the taxes of all households with annual incomes below $75,000. In a speech Tuesday morning, he said, "We ought to be focusing help to the hard-pressed, squeezed, middle-income families that are either standing still or have been moving behind for the last 15 years."

In other words, the swing voters who determine election results.

Neither Gephardt nor his staff would say exactly how much his plan would cost or how large a tax break he was contemplating for each family.

But say he decided to offer each family $300 a year, or about 82 cents a day. In 1991, the last year for which statistics are available, there were 107 million taxpayers with pretax income below $75,000, about 94 percent of all taxpayers.

If each one got a tax cut of $300, it would cost the government $32.1 billion (107 million times $300), which is half again as much as the government spends each year on Aid to Families With Dependent Children, the main federal welfare program.

Gephardt said he would find spending reductions to offset the tax breaks. But as has been the case with Republicans, he declined to be specific.

The plan being pushed by Republicans in the House of Representatives would offer each family with income below $200,000 (99 percent of all taxpayers) and children in the household a $500 tax credit for each child. That means that a family with two children would have its taxes reduced by $1,000. The 64 percent of taxpayers who have no dependent children would get nothing.

Generally, the more income that taxpayers have, the more likely they are to have dependent children. For instance, 55 percent of taxpayers with incomes from $100,000 to $200,000 in 1991 claimed at least one exemption for a dependent. Only 42 percent of the taxpayers with incomes from $30,000 to $35,000 claimed such an exemption.

The Republican staff of the House Budget Committee reported last year that the plan would cost the Treasury about $20 billion a year. IRS figures show that about 40 million taxpayers have children and an income less than $200,000; 40 million taxpayers times $500 comes to exactly $20 billion.

Some families, of course, have more than one child and thus would get a bigger credit. …