Taxes: Beware the Big-Tax Bullies
The few favorable vestiges that remain of the "Reagan revolution," which sought to give beleaguered American taxpayers a break, may soon become things of the past. As I write this, the big-spending forces on Capitol Hill are gearing up a campaign to cancel and reverse virtually every tax benefit scheduled to go into effect over the next three years.
Dan Rostenkowski (D–Ill.), for example, chairman of the House Ways and Means Committee, unveiled a passel of proposals last February—cunningly called a "tax freeze"—to entirely gut Reagan's tax reforms. And big-taxer-and-spender Sen. Robert Dole (R–Kan.) weighed in with praise for many of Rostenkowski's "sound and sensible" suggestions. The big-tax chorus is loud and growing.
If Congress's profligate politicians get even a part of their plan approved, it will help to stifle any emerging economic recovery in the United States. Consider some of the "high points" of these tax reformers' plans:
• As of January 1, 1985, income-tax brackets are scheduled to be "indexed" to keep up with inflation. What this means is that the federal government will be denied the mountainous windfalls produced by inflation and a "progressive" tax system, wherein those who "make more"—more nominal dollars, that is—must pay ever higher percentages of their incomes in taxes. This is the familiar "bracket creep," and it has effectively enabled the government to increase taxes every year for decades, without having to "go public" with tax-increase laws.
The result has been an explosively growing welfare state, with predictable economic stagnation following close behind. Working people, in the meantime, puzzle over how they can "make more money" each year yet find their standard of living continually eroding. Indexing of income-tax brackets would bring the whole process to a halt, starting in 1985. A so-called tax freeze would repeal income-tax indexation.
• The federal estate and gift tax was pretty effectively gutted by the Economic Recovery Tax Act of 1981. Under the act, less than one percent of all estates would ultimately be taxed—which is the way it should be, as I can think of no reason government should have what someone else has worked a lifetime to earn. The estate- and gift-tax law has decreases scheduled each year through 1987. Congress's big spenders would abolish these and possibly even reverse the tax decreases already in place.
• Remember the "windfall profits" tax that Jimmy Carter passed to punish the people who produce the oil? Well, some of the provisions of President Reagan's tax-cutting law of 1981 reduced the penalties for producing oil, particularly newly discovered oil. Naturally, the more you tax something, the less you have of it; if you reduce taxes on a commodity like oil, you'll find supplies (and new discoveries) increasing. The new tax "reformers" would abolish scheduled decreases in the "windfall profits" tax.
• How about the new cigarette tax passed by the misnamed Tax Equity and Fiscal Responsibility Act (TEFRA)? Well, one fact about the cigarette tax is that it will automatically expire on October 1, 1985. But if the big spenders get their way, that extra tax will become permanent.
• Remember the new telephone taxes put on us by TEFRA? They, like the cigarette taxes, also are scheduled to self-destruct, in 1986. You guessed it. The big-tax faction wants to make that tax permanent, too.
• Another scheduled tax break is for Americans who work overseas. Right now the federal government taxes money you make anywhere in the world, with slight exceptions. By 1986, overseas income will be tax-free up to $95,000. Guess who wants to repeal that scheduled tax break?
• There are a number of other areas where taxpayers are either currently getting a break or will be getting one in the next few years: We can now deduct charitable contributions from income even if we don't itemize deductions on the Schedule A. In 1985, 15 percent of earned interest, with limitations, will be deductible on our tax returns. Depreciation levels are set so that businesses can take faster write-offs than in the past. Starting in 1986, the tax exclusion for pension-plan contributions will be indexed to inflation—which means we'll all be able to increase our pension contributions dramatically without having to pay additional taxes. And so forth. Congress's big spenders have at least 13 separate tax breaks on their hit list, and if they succeed, every man, woman, and child in America will be adversely affected.
Some of Reagan's aides can be expected to fight the big taxers' proposals, even if weakly, while others will work behind the scenes to undercut administration resistance to such plans (since, apparently, few of Reagan's advisors actually believe what the president believes in). And there is no scarcity of congressional politicos who think that government creates prosperity by taxing working people and spending the proceeds on politically favored pressure groups.
If Rostenkowski and his ilk dominate the political scene with their skewed view of how to achieve economic recovery, look out: More and more people will be turning to the subterranean economy. Still others will think about it and sensibly choose a poorer lifestyle with less work but more leisure time. And still others will hunker down and prepare themselves for the endless stagnation of a society going nowhere.
Tim Condon is an attorney and tax specialist practicing in Florida.