Even with last year's much-touted "reform" of the income-tax system, the richest Americans still will pay relatively less in taxes in 1988 than they did in 1977, while the poor will pay more, according to a government report released yesterday.
Higher social-insurance taxes, an increase in income for the wealthy and changes in tax laws caused the shift, the Congressional Budget Office said. Last year's tax-revision law partially reversed this trend, increasing the relative tax burden on the wealthy and reducing taxes for the poor, but did not offset it entirely.
By 1988, the top 1 percent of taxpayers in the United States -- the richest -- will pay 29.3 percent of their income in taxes, while in 1977 they paid 31.8 percent, under one set of assumptions used in the study. The bottom tenth of the population in terms of income paid an average rate of 8.2 percent in 1977, and will pay 9.7 percent in 1988. Tax rates for those in the middle-income brackets generally changed little.
In 1984, the third year studied, rates for the rich were lower and for the poor were higher than they were in 1977, but the tax-revision law enacted in 1986 generally reduced taxes on lower-income Americans more than it did for the better-off.
"The CBO study documents the extent to which the federal revenue system has become less fair over the last decade," said Sen. George Mitchell (D-Maine), who requested the report. "The highest-income families in America have benefited from large federal tax reductions while all other Americans either pay more or the same in total federal taxes."
The report did not include the impact on different income groups of federal spending programs, which tend to benefit those less well off.
Two of the principal causes for the decline in "progressivity" -- which describes a tax structure in which the rich pay a greater share than the poor -- stem from factors outside the income-tax code. Increases in such payroll taxes as the Social Security old-age and Medicare levies have fallen harder on the poor than the wealthy, the report said.
This year, those payroll taxes take 7.15 percent of a workers' salary up to $43,800 of income.
In 1988, the report said, social insurance taxes on all but the richest 10 percent of taxpayers will be at a higher rate than income tax rates on the same taxpayers. (The report assumes, as economists often do, that the employer's share of social-insurance taxes actually is paid by the worker).
The amount of income earned by the top 10 percent of taxpayers also increased disproportionately during the period studied. As a result, tax payments by that group went up. But because they did not rise as much as income, taxes as a share of income for the high-income group decreased.
But changes in the tax laws helped bring about the decline in progressivity as well, the report said. Adjusting the figures for changes in income, to isolate tax-law changes, the study found the same patterns, although less pronounced.
In 1981, Congress drastically cut tax rates for higher-income taxpayers. Tax increases were enacted, and signed by President Reagan, in 1982, 1983 and 1984. The 1986 tax-revision law cut taxes for individuals and increased them for companies.
"The contribution of the 1986 act was toward progressivity, but only modestly," Mitchell said.