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Tax policy shouldn't make the poor get poorer

A 1987 Newsday editorial on tax policy. Thirty

A 1987 Newsday editorial on tax policy. Thirty years later tax reform is still being debated. Credit: Newsday Archive

This editorial originally ran in Newsday 30 years ago on Nov. 16, 1987. The topic was a Congressional Budget Office report on the effects of tax changes enacted by President Ronald Reagan and a Republican Congress. The conclusion: The new laws enriched the well-off some, enriched the very well-off tremendously, and increased the tax burden for the poor and middle class. The trickle-down effect is the same dishonest argument we have today as the House passes another tax bill, one that will be a killer for many New Yorkers. Click here to read The Point's full take.

Now the nonpartisan Congressional Budget Office has confirmed what many Americans have suspected: Over the last 10 years, the rich did get richer and not only the poor but the middle class got poorer. By the end of 1988, four out of five American families will have suffered a decline in real income.

And instead of reducing those differences, the tax policies of the Reagan administration have exaggerated them. The CBO studied the effects of all federal taxes - income, excise, Social Security and Medicare - on American households between 1977 and1987. Its conclusion: The poorest 10 percent of the population will pay 20 percent more in taxes next year than in 1977; the richest 10 percent will pay 6.4 percent less. The very wealthiest - the top 1 percent - will pay nearly 20 percent less.

And while last year's tax reform benefited the lowest-paid workers, the CBO found that the change was not enough to offset increases in other taxes and the fact that inflation pushed them into higher tax brackets.

Middle-income people have been staying pretty even in terms of taxes, but that will end next year, when most of those with incomes between $20,000 and $70,000 will face a tax increase. The major reason is that the minimum rate rises to 15 from 11 percent under the tax reform law enacted last year.

Sen. George Mitchell (D-Maine), who requested the CBO study, said the shift in income was also striking. "Average real income has increased in this country, not because average working-class families are better off but because the highest-income families have had such a tremendous increase in their income," he said. One reason for the shift is the impact of inflation, which dramatically reduced real incomes in the late 1970s. Another is the drop in top income tax rates - which benefited higher-income people - coupled with stiffer payroll and excise taxes, which fall disproportionately on lower-paid workers.

The tax burden began to shift with the 1981 income tax cuts and continued with last year's tax reform. The top tax brackets will go down even more next year. The remedy should be obvious: When Washington is looking for new revenue to close the federal deficit, it should at the very least continue this year's tax rates, while it seeks other ways to make the taxes more progressive. There's no more reason to soak the middle-class for the benefit of the rich than there was for soaking the poor.