Truth in taxation.

Truth in Taxation

THE 1986 Tax Reform Act was billed as a $25-billion shift of tax burden from individuals to corporations. Understandably, in selling the package to the American people, both Treasury and the Joint Tax Committee focused almost exclusively on the personal-income-tax side of things. Charts were prepared showing all income brackets paying less under the new law, with reductions in 1988 ranging from 2.4 per cent for taxpayers with incomes above $200,000, to 65.1 per cent for those with incomes below $10,000. The average taxpayer, we were told, would pay $194 less in 1988 because of this legislation.

But corporate taxes are paid by people also, not directly, but indirectly--first in the form of lower dividends and capital-gains income, and then, in cases where corporations are able to pass the tax on to their customers, in the form of higher prices for goods and services.

Recent research has worked through the net impact of the total tax package, including the corporate tax increase, on the tax liabilities of individuals, and has discovered that, when corporate taxes are factored in, all income brackets above $50,000 pay more in taxes under the new tax law. Considerably more.

Individuals earning $200,000 and above will see their combined personal- and corporate-tax liabilities rise by $18,770 in 1988, a 12.9 per cent increase over what they would have been paying under the old tax law. Taxpayers with incomes between $100,000 and $200,000 will pay, on average, $3,335 more; between $75,000 and $100,000, $1,113 more; and between $50,000 and $75,000, $243 more, according to the National Bureau of Economic Research.

Taxes are reduced for those earning less than $50,000, but not by nearly as much as had been promised: individuals earning less than $10,000 will pay 17.6 per cent less; they had been promised a cut nearly four times as large. Taxpayers in the $40,000 to $50,000 group will pay 4.4 per cent less--not the 9.5 per cent reduction originally advertised.

Taxpayers over age 65 will pay more under the new law no matter what bracket they are in, reflecting the importance of capital-gains income among older retired or partially retired individuals in all income classes. The combined tax increase ranges from 17 per cent for elderly taxpayers in the $10,000 to $20,000 income group, to 8 per cent for those in the highest income group.