76-15-B3
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Indexing[edit]
Transcript[edit]In California the leader of the minority party in the legislature is pushing to have the graduated state income tax "indexed". He is being opposed by the big spending majority. Many of you who are listening live in states without an income tax; or, if there is one, it is a flat percentage of whatever your income happens to be. But all of us are subject to the steeply graduated federal income tax and here again a few brave souls in Congress -- like that California legislator -- are trying to get the federal tax indexed. Very simply, indexing means adjusting the graduated surtax brackets to reflect the effect of inflation. As it is now, a wage earner who gets a cost of living increase usually moves up into a higher tax bracket. His pay raise hasn't made him one penny better off as to purchasing power. He's just kept even with the higher cost of living. That is he's kept even till he pays his taxes. Then, that higher surtax rate takes its bite and he's actually less well off than before the raise. Here are some examples from California on just the effect of the state income tax without figuring in the added chunk Uncle Sam grabs. A family of four earning $9,600.00 last year will have to get a $595.00 raise to keep even with the 6.2% inflation rate. So this year their income is $10,195.00. But that raise put them in a higher state tax bracket reducing their purchasing power by $70.00. A family earning $18,300 . 00 (about the median income) gets a cost of living raise to $19,435.00, but their taxes go up far more than 6.2%. Add in the federal bite on both these examples and you can see why even with the pay raises it still doesn't get easier to pay for those braces on Junior's teeth. In 1974, the federal government got an estimated $30 billion of undeserved tax because no allowance is made in the t ax rates for inflation. That averages out to $130.00 for every man, woman, child and baby in America. But, don't let that fool you -- it's a lot more than $130. for the average taxpayer. Suppose the cost of living index was applied to the tax brackets--then the wage earner would continue paying the same rate of tax unless and until he got a raise that actually amounted to an increase in purchasing power. Politicians for the most part don't favor indexing because that would interfere with their spending habits. You see, under the present system, inflation is an invisible tax . In California, in just the last three years, state income tax collections have increased twice as fast as personal income. That figure at the national level is probably even higher. Now the politicians answer is that government is also caught by inflation and must pay higher salaries and prices for things it must buy, so indexing would keep it from growing with the economy. Of course government costs go up with inflation, but so would tax revenues even with indexing. That first California family I mentioned would be paying income tax on $10,195.00 instead of $9,600.00, but the rate would remain the same. Right now for every percentage point of increase in cost- of-living, the government gets one-and-a-half percentage points increase in revenue. Indexing of the California tax would save Californians $345 million the first year. Indexing the federal income tax could save as much as $30 billion a year for all of us. Indexing is an idea whose time has not only come -- it is overdue. Several other countries have already done it. Leading economists endorse it. The American people should demand it in a way Congress can't ignore. Indexing isn't a tax cut, it is a halt to an illicit, hidden increase. This is Ronald Reagan. Thanks for listening. |
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