A piece in today’s Washington Post illustrates how bizarre and unfair the federal tax structure is – and it’ll just get more unfair when Bush’s tinkering is done.
Consider the following two hypothetical households. First there’s our single taxpayer. Let’s call her Jennifer Adams. She’s 33 and will earn $11,000 this year cleaning motel rooms. She takes the bus to work because she can’t afford parking fees, rents an efficiency apartment for $400 a month, receives no work benefits beyond one week of vacation or sick leave (her choice), pays all her health insurance premiums and out-of-pocket health costs, and has no other income. Her modest earnings have prevented her from saving anything for retirement.
Then there’s our married couple. I’ve named them Tom and Grace Chance. They’re 31-year-old parents of 1-year-old twin girls. Tom will earn $66,000 this year as a full-time associate in a national accounting firm, plus $3,000 his employer will contribute to his 401(k) plan, to which Tom also will contribute $6,000 out of his salary. Grace will earn $11,000 as a part-time secretary.
It is Tom’s good fortune that his employer also has a “cafeteria plan,” which offers a rich menu of opportunities for him to avoid taxes on the portion of his wages his employer uses to pay many of his personal expenses. This year, Tom’s menu — totaling $16,000 — will cover premiums for a family health insurance policy and a disability-income policy; out-of-pocket family medical expenses and parking expenses at work; and $5,250 (the maximum allowed under the rules) for college courses he is taking in late 19th-century expressionist art.
Tom and Grace own their four-bedroom house. They have mortgage interest, property taxes and state income taxes to pay. They also make small charitable contributions. These expenses will total $18,800 this year.
Okay, public. What do you think? Should Jennifer pay an income tax? Should the Chances? If only one should pay, which one?
I hope you’re sitting down. The answer is: Congress believes only Jennifer should pay. Congress figures it’s fair to tax her on her income above $7,800 (Fig. 1, above), even though the federal poverty level for people like her is $9,400. The Chances will be required to pay nothing (Fig. 2, below) — zero — even though their $80,000 earnings are more than 430 percent of the federal poverty level ($18,400) for a family of four. In computing the Chances’ taxes, I have assumed that Congress, as proposed by both houses, will increase the child credit this year from $600 per child to $1,000, and will increase from $12,000 to $14,000 the amount of their income subject to taxation at the marginal rate of 10 percent. Otherwise, the Chances would have to pay $900 in taxes, a burden Congress appears to believe they should be spared.
Now I understand – I’m obviously not making enough money! If only I could make $60-80,000 a year, then I could be free of these taxes, which are clearly meant only, as Mrs. Helmsley put it, for the little people.
