The Treasury Department's modified flat tax proposal, released last week, reduces tax burdens most for those who need it most: families and the working poor. This aspect as much as any other justifies the program's passage.
In fact, no single group has suffered more from tax increases over the past three decades than families with children. For most low-and moderate-income families, the critical tax benefit is the deduction allowed for each child. This deduction, a full $600 as long ago as 1948, stands today at only $1,000.
If this deduction had kept pace with inflation and real income growth, however, it would equal some $5,600 per child today. Thus, the deduction for children has lost more than 80 percent of its value in the last 36 years -- constituting an invisible but insidious tax increase on families with children.
Looked at another way, while real tax increases since 1948 have consumed an additional 5 percent of the incomes of single persons and married couples with no children, they have eaten away about twice that -- as much as an additional 10.1 percent -- for families with children.
Poor families, especially those headed by a single parent, have fared even worse. Their taxes have risen so much that at present a working parent in a family of five, with an income $2,500 below the official poverty level, may have to pay as much as one-tenth of her income in taxes.
The 1981 tax-rate cuts certainly helped all of these families. But as substantial as they were, they barely offset the inflation-induced bracket creep and Social Security tax hikes already in prospect. And the reduction in the marriage tax penalty, while important, did little to help single-parent and other one-earner families.
By contrast, the present proposal is explicitly pro-family -- perhaps more so than any comprehensive tax proposal in decades. Its key features are: 1)a doubling of the personal and dependency deductions to $2,000 each; 2)a sizable increase in the zero-bracket amount; and 3)indexing of the earned income tax credit for the working poor.
This tax proposal would help families in two major ways. First, it would do what no other tax proposal in recent decades would have done: it would exempt all families in poverty from the federal income tax. In 1986, the poverty level for a married couple with two dependents is projected at $11,600; under the Treasury proposal, no such family would begin to pay any federal income tax until its earnings reached $11,800.
The benefits would be even greater for single-parent families. The poverty threshold for a mother with one child is projected at $7,900 in 1986, but such a person would not begin to pay any federal income tax until her earnings reached $9,303.
In addition to exempting the poor from federal income taxes, the Treasury proposal would greatly reduce tax burdens for other low- and moderate-income families. Families with incomes under $10,000 (whether in poverty or not) would receive an average tax reduction of 33 percent. Those earning between $10,000 and $15,000 would receive a 17 percent reduction; those between $15,000 and $20,000, 12 percent. For other families, the reduction would average around 8 percent.
Such reductions in the tax bite would do more economic good for families -- especially those with low and moderate incomes -- than any amount of rhetorical posturing about compassion. While they do not comprise a complete family-oriented social policy in themselves, they are a necessary and admirable start.
The president -- who throughout his career has supported pro-family tax legislation, such as the removal, when he was governor of California, of all poverty-level families from the state income tax -- should promptly embrace the Treasury proposal and challenge head-on the special tax privileges that benefit mainly the well-off at the expense of average families.
And the Democratic leaders in Congress, if they are as committed to families now as they said they were last summer in San Francisco, should introduce the Treasury proposal themselves as soon as Congress reconvenes.
No two acts could better symbolize that this next four years will offer government "for the people" -- as both presidential candidates promised in 1984.