OCR Text |
Show . ' , v . 1 ". t " ' ' ' 1 I i ' ; i ! ' r - - - 1 , ' r s ... ... ,. . I ' ... - i CEMENT TRUCK braves nearly a mile of S. R. 208 to Ouray between the White River and Green River, and other vehicles Congress is having second thoughts about income tax indexing With growing federal deficits, some members of Congress are having second se-cond thoughts about allowing indexing of the federal income tax, to take effect ef-fect in 1985. This was noted in a study by Utah Foundation, the private tax research organization. Indexing was part of the 1981 tax reform act. It is designed to automatically adjust tax schedules in order to prevent bracket creep during periods of high inflation. Bracket creep occurs when increases in salaries and other income to keep pace with higher living costs results in heavier tax burdens for individuals and families without any actual improvement im-provement in their overall economic position. The Foundation observes that bracket creep had a particularly adverse effect during the 1970s. Between Bet-ween 1970 and 1981, the percentage of adjusted gross income going for federal and state income taxes in Utah rose from 13.7 percent to 16.4 percent. Federal income taxes climbed from 11.4 percent in 1970 to 13.1 percent in 1981, while state income taxes rose from 2.3 percent to 3.3 percent during this period. Whenever inflation causes tax liabilities to rise at a faster rate than is contemplated in the basic tax structure, struc-ture, two things happen: 1. The individual has less after-tax income in terms of real dollars (purchasing (pur-chasing power) than he had before. 2. Government collects more tax revenue (in terms of both real as well as nominal dollars) than was intended intend-ed when the tax structure was designed design-ed and adopted. As a permanent counter-measure to the hidden inflation tax, the 1981 federal tax law included indexing as part of the tax reduction program. Under that law, indexing is scheduled follow. Most of the flooding was caused by the White River. to begin in 1985 and follows a three-year three-year reduction in federal tax rates. Foundation analysts point out, however, that Congress now is debating whether they should kill indexing in-dexing before it starts. Opponents argue that it would cost too much money. A report by the Congressional Budget Office stated that indexing would reduce federal income tax revenues by an estimated $6 billion in the 1985 fiscal year and this amount would climb to $40 billion by fiscal 1988. Opponents claim that these amounts could help offset budget deficits projected for those years. Other arguments against indexing used by opponents are: 1. Indexing is not a solution to inflation; infla-tion; it merely is a camouflage. 2. Indexing has not worked well where it has been tried. 3. Tax savings to the working poor would be offset by scheduled increases in Social Security (FICA) taxes. 4. The consumer price index is not an accurate enough measure to warrant war-rant its use as a basis for tax adjustments. Proponents for indexing the income tax, on the other hand, maintain that the law is needed to discipline Congress Con-gress to be more fiscally conservative. In the past, the added revenue derived deriv-ed from the "inflation tax" has encouraged en-couraged Congress to begin new projects pro-jects which could not be sustained during dur-ing more normal times. Among the other arguments used by proponents of indexing are the following: 1. A recent study by the Treasury Department shows that the chief beneficiaries of indexing will be the poor and the middle classes. 2. Indexing will force Congress to vote explicitly for tax increases, instead in-stead of letting inflation impose a hid- den tax increase year after year. There was little incentive for government govern-ment to control inflation when it was the major beneficiary of rising prices and incomes. 3. Inflation . and higher taxes resulting therefrom have tended to distort investment and work decisions. This has led to a rapid growth in the "underground economy," as individuals in-dividuals seek to avoid or evade taxes in order to preserve real incomes. 4. The intent of indexing is to keep real revenues stable so that the tax take rises only in proportion to real economic growth. This will tend to restore confidence to the tax system. |