The Census Bureau's recent report on the economic state of the poor did not discuss one federal trend that has worsened their condition: the federal income tax now takes an increasing bite out of incomes that are below the poverty level.
Taxing the poor sounds remote and archaic, the sort of thing that Old Testament prophets inveighed against or that swashbuckling movies disclosed about the pre-revolutionary French aristocracy. It seems obvious that no modern income tax ought to tax the incomes of those who have so little as to be designated poor.
Yet the U.S. income tax now does so. According to the Census Bureau, the 1982 poverty line for a family of four was $9,862, a number that seems, if anything, too low. A worker who earned $9,862 for his family of four nonetheless incurred federal income tax. After claiming four personal exemptions ($4,000) and the zero bracket amount (ZBA) ($3,400), $2,462 remained subject to income tax, for a liability of $288 in tax.
The poverty-level worker also owed other taxes based on his earnings. He incurred Social Security taxes of $661, as did his employer. In addition, the state in which he lives also may impose an income tax. Such taxes frequently follow the federal model, so the state likely exacted some additional tax from him in 1982.
The federal income tax, which grants a deduction for state income taxes, supplied no such balm here. The poverty- level worker, having claimed the zero bracket amount, foreclosed any further deduction of state income taxes, along with medical expenses or interest.
These tax rules thus required families that the government formally declared needy to help pay for the federal and state budgets, generally at the same time as the public fisc is called on to support the same needy families.
When a similar paradox emerged in the late 1960s and early 1970s, tax policy-makers sought to exempt poverty- level families from federal income tax. Congress and the administration worked to increase the personal exemption and the predecessor to the ZBA (and for a brief period introduced the general tax credit) to levels that would keep poverty families out of the federal income tax system. Unfortunately, inflation in the late 1970s and early 1980s pushed up the poverty line. As the inevitable result of a rising poverty level and a static threshold for taxability, large numbers of officially poor became liable for federal income tax.
The 1981 tax cuts sought to adjust for this kind of bracket creep at higher income levels. But they failed to increase the personal exemption or the ZBA; the president and Congress simply deferred consideration of the bracket creep of the poor to a later day.
The mechanics for raising the federal tax threshold are straightforward: increase the personal exemption and the ZBA. An added grace note would allow the deduction for state income taxes even when a taxpayer claims the ZBA.
But do not expect rapid implementation of these changes. A major problem, quite simply, is cost. Any change in the personal exemption or the ZBA, even of modest dollar amounts per family, involves billions of dollars in lost federal revenues. A Congress concerned about huge deficits is unlikely to incur revenue losses on behalf of its silent constituents. Prevailing economic theories find no public benefit in surrendering future tax revenues to poor families.
And so the United States income tax probably will continue to levy on the income of the poor, worsening the condition of those least able to help support us all.
The writer is a law professor at Boston University.