As Congress moves toward revision of the Reagan administration's economic program, Citizens for Tax Justice, a liberal-labor lobbying group, has issued a report contending that the 1981 tax cut is working against the administration's claimed goals of increased investment and productivity.
The organization maintained that the Economic Recovery Tax Act will distort investment patterns by creating increasingly disparate tax rates for different industries and discourage worker productivity by shifting the tax burden away from corporations and toward wage income.
The tax bill will function, according to the group, to intensify the undesirable tendency of corporations to make short-term, rather than long-term, investments.
"The emphasis of American corporate managers on short-term investments has come under increasing criticism. . . . The 1981 business tax cut makes the problem far worse, by providing massive tax subsidies to short-term investments and sharply increasing discrimination against investments with longer useful lives," the group contended.
Quoting the 1982 Economic Report of the President and the Council of Economic Advisers, Citizens for Tax Justice said the shift--accelerated by the 1981 tax bill--of the burden of taxation away from corporate income toward wage income will hurt productivity.
The administration report acknowledged that switching from "wage and capital income taxation to wage taxation alone can reduce economic welfare and efficiency, even though this structural change would lead to more capital formation."
While the administration argues that it has been shifting toward "a hybrid mixture of wage and consumption taxation," the citizens group argued that the burden is shifting heavily toward wages, citing the following figures from the Joint Committee on Taxation and from the federal budget:
Since 1948, the percentage of the federal tax burden raised through the individual and Social Security taxes has grown from 55.7 percent to 77.8 percent in 1980, and it is expected to reach 85.2 percent in 1987.
In contrast, the share financed by the corporate income tax has fallen from 23.2 percent in 1948 to 9.8 percent in 1980, and would drop, if current policy stays in place, to 7.7 percent by 1987.
In an effort to back up its argument, the citizens group cited statistics compiled by Harvard economists Dale Jorgenson and Martin Sullivan and the Economic Report of the President that suggest that there is no correlation between lowered corporate tax rates and growth in productivity. The steady lowering of the effective corporate tax rate since 1955 has been accompanied by an almost consistent pattern of lowered productivity gains, according to Citizens for Tax Justice.