STUDY finds tax burden, income of wealthy grew most since 1979

<br>WASHINGTON (AP) _ Liberals say a new Congressional Budget Office study shows the tax-cutting bill President Bush expects to sign next week would expand an already growing income inequity between the

Friday, June 1st 2001, 12:00 am

By: News On 6

WASHINGTON (AP) _ Liberals say a new Congressional Budget Office study shows the tax-cutting bill President Bush expects to sign next week would expand an already growing income inequity between the rich and other Americans.

Conservatives say the report by Congress' nonpartisan fiscal analysts simply reflects demographic changes that already were under way and will change.

The analysis, which the budget office released last week in the heat of the budget fight on Capitol Hill, said the share of overall federal taxes paid by the wealthiest Americans has grown dramatically in the past two decades. It also showed, however, that the income of that richest group has grown even faster.

The report said that from 1979 to 1997, the portion of all federal taxes paid by the best-off 1 percent of households has grown from 15.5 percent to 23 percent. That represents 48 percent growth in their share of the tax burden over the period.

Over the same time, the average after-tax income of that wealthiest 1 percent swelled from $263,700 to $677,900 _ a 157 percent increase.

The lowest-earning one-fifth of Americans saw their average after-tax income drop from $10,900 to $10,800 during the period, the study showed. And the middle one-fifth of Americans, by income distribution, went from a $33,800 average to $37,200 _ a 10 percent increase.

The report covers from 1979 to 1997, the most recent year for which figures are available, and is based on data gathered by the Census Bureau, the Internal Revenue Service and the Bureau of Labor Statistics. The budget office periodically issues studies of tax and income distribution.

The analysis seems to provide political ammunition to both sides in the debate over Bush's top domestic priority, a mammoth tax cut, though it excludes the effects of that legislation.

Congress voted final approval last Saturday to a 10-year, $1.35 trillion tax reduction that Bush is likely to sign next week. His Republican supporters praised the measure as a tonic for the economy that will also provide overdue relief for taxpayers, while Democrats derided it as an oversized boon to the rich that will deprive Social Security, education and other programs of needed funds.

Robert Greenstein, director of the liberal Center on Budget and Policy Priorities, said the study showed the discrepancies between the wealthy and lower-earning Americans are ``wider than ever.

``With the new tax bill, we're poised to make these gaps still wider than they already are,'' he said Wednesday in an interview.

Democratic analysts have said the tax legislation would grant nearly 40 percent of its benefits to the highest 1 percent of the country's wealthiest households.

But conservatives said the income discrepancies between rich and poor reflected in part that in 1997, there were far more college students with low earnings and baby boomers at the peaks of their careers than there were in 1979. This will ease as the students graduate and make more money and the baby boomers retire and make less, they said.

``This has a lot to do with tax policy, but also a lot to do with demographic changes,'' said Kirk Johnson, who analyzes income and social programs at the conservative Heritage Foundation.

Conservatives also took issue with the study's findings that Americans of all income groups lost less of their earnings on average to federal taxes in 1997 than in 1979. They said if the reporting period started just two years later _ in 1981, the first year of President Reagan's big tax cut _ the tax burden would show a drop for all but the best-off one-fifth of Americans.

Starting the comparison in 1979 is ``really stacking the deck,'' said Ralph Rector, a tax analyst at Heritage.

The changes in taxation result largely from 15 tax bills enacted during the period, including 11 that increased taxes. The numbers of single-parent and childless households also have grown, and each faces a different tax burden than households with children. In addition, peoples' earnings have shifted among salaries, capital gains and other types of income, each of which faces a different rate of taxation.

The report analyzed the effects of the four biggest sources of federal revenue: individual income taxes, Social Security and Medicare taxes, corporate income taxes and excise taxes. It did not examine the estate tax, which would be phased out under the bill approved Saturday, or state and local taxes.