IT IS nearly one year since the Republican landslide, and taxes have yet to come down by a penny. Two weeks ago, Senate majority "leader" Bob Dole was still dithering on whether he would support the Republican plan for a $245 billion, seven-year package of tax cuts. The Senate Finance Committee is only just getting around to taking up the tax relief that was at the heart of the GOP's 1994 manifesto. And already taxpayers have lost Round 1: At $245 billion, the tax cuts now on the table mark a big retreat from the original House of Representatives version, which would have been worth $354 billion over seven years.
Why this wimpishness? Easing the tax burden and shrinking the federal establishment are exactly what the GOP was elected to do. Betraying that mandate will only fuel public wrath. And rightly so: Voters didn't hand Republicans the most lopsided political triumph of the 20th century so the government's hegemony over American economic life could proceed unimpeded.
But tax relief is about more than political reward and punishment. Taxes should be cut not because doing so would be good politics, but because doing so would be good -- period. Of all the torments Washington inflicts on American citizens, none hurts more people more consistently than the tax code. The case for cutting taxes -- and especially for the $500-per-child tax credit promised by the Contract with America -- is a compelling one. Republicans should be making it every chance they get.
This year, the Tax Foundation reports, the US government will collect $1.44 trillion in taxes. Nearly 80 percent of federal revenue is withheld from paychecks. Of every four dollars Americans earn, Washington takes away one. Per capita, the federal tax burden adds up to $5,500 for every man, woman and child in the United States.
The effect of all this taxation on families has been devastating.
In 1950, a family of four earning the median income paid 2 percent of its wages to the federal government. Today it pays 24.5 percent. "The average family now loses $ 10,060 per year of its income due to the increase in federal taxes as a share of family income," wrote the Heritage Foundation's Robert Rector in March 1994. "This tax loss exceeds the annual cost of the average home mortgage." Think of it: Restore the federal tax bite to 1950 levels, and the average family would keep so much more of its earnings that it could afford a second home.
But loss of dollars is only one way to gauge the crushing impact of taxes on American families.
For tens of millions of couples, full-time parenting is no longer an option. A key reason is taxes. The number of working mothers with children younger than 6 has more than tripled in the last 35 years, a rate of increase far in excess of population growth. This vast influx of mothers into the work force has been driven by many factors, but above all by necessity: Families need a second income to pay their tax bill. Among two-earner couples, it takes (on average) two-thirds of the mother's income just to cover the increase in federal taxes since 1950.
Of course, many mothers today would choose to work regardless of tax considerations. But most work because they must and would prefer to care for their children full-time if it were financially possible to do so. No image more poignantly captures the meaning of a rise in the tax burden from 2 percent of family income to 24.5 percent than that of the latchkey child who comes home every day to an empty house.
The ideal tax relief would be a flat tax like the one House majority leader Dick Armey proposes: one low rate on income and a high no-tax threshold. But until Armey's flat tax becomes law, the best way to ease the Internal Revenue Code's stranglehold is through tax cuts that allow the largest possible number of taxpayers to keep the largest possible share of their income.
This means cutting capital gains, expanding Individual Retirement Accounts, and ending the "marriage penalty," but above all it means a $500 tax credit for each dependent child. That would benefit 35 million working families raising 52 million children, and because a tax credit comes right off a taxpayer's final bill, it would steer the greatest relief to lower-income families.
Example: A typical family of four earning $20,000 pays $3,600 in federal income and payroll taxes. Cutting that tax bill by $500 per child ($1,000) would lower it to $2,600, a reduction of about 28 percent. If that family earned $40,000 and owed federal taxes of $9,500, the same $500-per-child tax credit would yield a 10.5 percent reduction. For a family earning $75,000, the credit would cut taxes by only 5 percent. For a family earning $200,000, by less than 1 percent. The more a family made, the less it would gain, yet the credit would be uniform for every child -- unassailable tax "fairness."
There is no conflict between lower taxes, lower spending and a lower deficit. The more of their earnings Americans can keep, the less the pressure on Congress to spend money "for" them -- and the easier it becomes to balance the budget. Tax cuts drive spending cuts drive deficit cuts. To Bob Dole, a 35-year Washington insider, that formula may be incomprehensible. To tens of millions of taxpaying voters, it's what the '94 election was all about.
(Jeff Jacoby is a columnist for The Boston Globe.)
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