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Jewish World Review Oct. 21, 1999 /11 Mar-Cheshvan, 5760

Mona Charen

Mona Charen
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The tax trap --
REMEMBER THE HEADY TALK a few years back about filing your income taxes on a postcard? The notion of a simple, fair, and flat tax seemed to be an idea whose time had come. Steve Forbes made it the hallmark of his campaign.

Of course, some mordant observers figured that if the Democrats were designing the post card, it would have two lines: "1) What was your income last year? 2) Send it." But the most recent Republican proposal, which would have reduced taxes across the board, turned out to be a kite on a windless day.

What happened? This past summer, Republicans traveled to their home districts in hopes of stirring up grass-roots support for their tax cut, which would have included estate tax relief, a reduction of the marriage penalty, and expanded IRAs. Back in the 1970s and 1980s, tax relief was the engine that pulled the GOP electoral train. But now, even in an era of budget surpluses, voters are telling pollsters that they are more interested in reducing the national debt, or saving Social Security, than in receiving their money back.

Some Republicans strategists dismiss such polls, insisting that they merely reflect voter cynicism about the integrity of politicians. After President Bush violated his no new taxes pledge, many voters concluded that such promises are worthless anyway. Though in cases like Gov. Christine Whitman of New Jersey and Gov. John Engler of Michigan, voters rewarded politicians who kept their tax-cutting promises.

But there may be something else at work in the problems Republicans are having getting traction for tax relief. Tax reforms over the past two decades, including many championed by Republicans, have created a tax system today that is extremely progressive -- that is, low income earners pay little or no income tax, while those in higher tax brackets pay a disproportionate share.

How did we get here? As Amity Shlaes explained in a recent issue of National Review, tax credits are responsible for a large share of the problem. Republicans have always liked tax credits, including the Earned Income Tax Credit (recently the subject of Gov. George Bush's solicitude) because they seem to reward work instead of subsidizing idleness.

The Earned Income Tax Credit is available to all working parent, and is actually more than a credit (which can only be used to offset taxes owed).

The EITC is a rebate. So if a citizen's tax liability is $100 and his EITC is $200, he will receive a $100 check from Uncle Sam. The average rebate the EITC pays out each year is $1516 per taxpayer.

This credit, along with the child credit, the Hope credit and others, has created a tax system that is severely bifurcated between those who pay a great deal and those who pay very little. A socialist could not ask for a more progressive system.

According to the House Committee on Ways and Means, the top 8 percent of taxpayers pay 62 percent of all taxes, while 45 percent of taxpayers, those earning $20,000 per year or less, pay no income tax at all. Nineteen million Americans receive tax refunds from the EITC.

The progressivity of today's tax code is steep. Taxpayers earning between $40,000 and $50,000 per year pay four times as much in taxes as those who earn between $20,000 and $30,000 per year.

The combined effect of steep progressivity and tax credits (which are unavailable to upper income groups) is to shrink the pool of people who feel oppressed by high taxes. And when Democrats holler that reducing taxes inevitably means giving a "tax break to the wealthy," they are somewhat right (if by wealthy you mean anyone earning over $50,000 a year).

But the current system is neither efficient nor fair. The EITC discourages strivers from earning more, lest they lose the valuable credit. And the progressivity is patently unfair to the hard-working entrepreneurs of the nation who create wealth and therefor jobs and security for millions of others. Yes, the man who earns $1 million per year should pay far more in taxes than the man who earns $100,000. But a flat tax accomplishes that.

Our current system, designed by Democrats and Republicans alike, not only contains a marriage penalty; it contains a success penalty.

JWR contributor Mona Charen reads all of her mail. Let her know what you think by clicking here. Please bear in mind, though, that while all letters are read, due to the heavy amount of traffic, not all letters can be answered.

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©1999, Creators Syndicate