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'FLAT TAX' ALREADY HERE, BENEFITING WEALTHY AT MIDDLE CLASS' EXPENSE

'FLAT TAX' ALREADY HERE, BENEFITING WEALTHY AT MIDDLE CLASS' EXPENSE

H&R Block Study Shows Effective Total Federal Tax Rates Largely

"Flattened" Over Last 15 Years; Dramatic Reductions in Rates for
 Well-to-Do Matched by Big Increases for Middle Class Taxpayers
 WASHINGTON, April 8 /PRNewswire/ -- It is too late for presidential candidates and others to debate whether a "flat tax" is a good or bad idea. As another April 15th filing deadline approaches, most Americans are already paying their federal taxes on a de facto flat tax basis as the result of 15 years of tax developments that have generated considerable "tax savings for the wealthy while increasing the amount of federal tax paid by middle- class taxpayers," according to a major study conducted by the Tax Policy Research Project at the University of Missouri-Kansas City and released today by H&R Block, Inc., America's largest tax preparation service.
 "If a flat tax system means that you tax middle and upper income earners at about the same effective total rate, then the 'flat tax' is already here, much to the disadvantage of the middle class," explained H&R Block President Thomas M. Bloch. "This study should serve as an April 15th wake-up call for middle-income taxpayers, who will find in it clear proof that 15 years of 'tax reform' has resulted in more taxes for them and less for the wealthy. What is urgently needed is middle-income tax relief, not election-year gimmicks, such as flat-tax rhetoric and tax withholding adjustments."
 Key Study Findings
 H&R Block, Inc., asked the Tax Policy Research Project at the University of Missouri-Kansas City to produce the most detailed available look at the effect on "real people" of the last 15 years of developments in federal taxes. The result is "The Shift in Federal Tax Burden Onto the Middle Class," an 107-page study by Dr. Larry Garrison and Wanda James. Garrison and James determined and then applied the effective total (federal income and FICA) tax rates in the key years of 1977, 1984, 1988 and 1990 for 32 "illustrative cases" covering four filing situations.
 What has a decade and a half of federal tax developments wrought? "The result has been tax savings for the wealthy while increasing the amount of federal tax paid by middle class taxpayers," according to Garrison and James. Among the key conclusions of the new study commissioned by H&R Block, Inc.:
 -- The burden of total federal taxes now approaches a de facto flat tax for middle- and high-income earners. "The overall trend in federal income tax has been to flatten its tax rate structure across income levels," the study finds. "The difference (in 1990) between the effective income tax rate for the wealthiest income group ($200,000 in 1990 dollars) and the median income group ($35,000) in 1990 was half that of 1977." When FICA taxes are included in the calculations in order to determine total federal income-related taxes, the "flat-tax effect" is even more pronounced: "In conjunction with the lessening progressivity of the tax rate schedule, the middle-income taxpayers suffered effective total tax increases due to increased FICA effective tax rates from 1977 to 1990."
 -- Middle-class taxpayers have been hit with the bulk of the inequities of recent tax law changes. Effective income tax rates and effective total tax rates for taxpayers earning $100,000 or more underwent "a large percentage decrease" from 1977 to 1990, "while rates for the middle-income taxpayers rose," according to Garrison and James. For example, a taxpayer earning $50,000 in the years from 1977 to 1990 would have experienced an average percentage increase in his or her total tax rate of 7.75 percent, while taxpayers earning $200,000 a year during the same period benefitted from an average percentage decrease of 27.75 percent!
 H&R Block On Tax Reform
 Headquartered in Kansas City, Mo., H&R Block is uniquely qualified to speak out on the tax-related needs and concerns of middle-income Americans, who account for the vast majority of the firm's clients. In 1991, H&R Block's 7,000 offices in the United States served over 14 million taxpayers, nearly one out of seven (13.7 percent) individual filers. H&R Block is taking a major public role in calling for reforms that would benefit middle class taxpayers. In February 1992, Bloch testified in support of middle- income tax relief before both the House Ways and Means Committee and the Senate Finance Committee. H&R Block has urged adoption of broad- based refundable tax credits, not only for families with children, but also for the elderly, single taxpayers and married couples without children. For the latter two groups, the credits could prove invaluable to those seeking to buy a first home or start a family. Bloch also called for action to modify the earned income tax credit, which was altered in 1990 and now is too complex for many taxpayers to understand.
 On another front, H&R Block opposed the Bush administration's withholding rate reductions announced in late January. Bloch noted that the changes mean most Americans will end up with smaller refunds, no lump sum next spring, or, even worse, owing the IRS. H&R Block research shows that the tax refund, which last year averaged around $900, is an important and desired savings program for most taxpayers. As a public service, H&R Block has announced that it will provide free assistance to taxpayers who want to file new W-4 forms in order to preserve their previous withholding (and, as a result, refund) status.
 -0- 4/8/92
 /NOTE: For a copy of the H&R Block Study or to make interview arrangements, call the contact below./
 /CONTACT: Scott Stapf of The Hastings Group, 703-276-1116 or, after hours, 703-524-8417, for H&R Block, Inc./ CO: H&R Block, Inc. ST: District of Columbia IN: FIN SU:


DS -- DC004 -- 6080 04/08/92 08:50 EDT
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