FOR ALL THE symbolism and the resolutions, the coming of a new year changes little in the life of the average citizen. Some people will get pay raises; others will receive slightly fatter Social Security checks. But the most widespread tangible consequences are likely to be the tax-law changes that take effect today. Payroll taxes go up and income taxes go down.
Part of the rise in your payroll taxes will be obvious right away. Social Security will begin taking 7.05 percent of your wages each week instead of 6.7 percent. If you expect to earn $25,000 this year, that change will cost you $87.50. The rest of the rise won't show up until later in the year, and then only for people earning more than $37,800. Because the limit on taxable wages will rise to $39,600 -- to keep it in line with general wage growth -- more highly paid workers will have to pay as much as $2,792 in Social Security taxes this year. A decade ago the maximum tax was $825.
On the brighter side, income tax rates will go down. That's because the inflation-offset feature, added to the law in 1981, will go into effect. If your income next year rises more rapidly than inflation, you may still move into a higher tax bracket. But if you only stay even with inflation -- or fall behind -- the new indexing of the tax system will keep you from paying higher real taxes. Tax indexing will save a family of four with adjusted gross income of $25,000 about $50 next year.
You may notice that both of these changes fit into a more general trend in taxpaying over the past few decades. While total federal taxes take roughly the same portion of GNP as they did in 1960, the composition of federal taxes has shifted away from income taxes, which hit harder on higher incomes, and toward payroll taxes, which take a bigger share of lower incomes. Payroll taxes now account for about 35 percent of revenues, three times their 1960 share. Corporate taxes provided almost a quarter of 1960 revenues. Now they contribute less than 10 percent. Moreover the individual income tax has been gradually amended over the years to reduce its burden at the highest income levels, even as the burden at lower levels grew.
Of the many attractive features of the Treasury's new tax-reform proposals, one is that it would arrest this trend by shifting part of the burden back to corporations and reducing taxes at lower and moderate income levels. Although the Treasury plan would not initially raise the extra revenues needed to narrow the budget deficit, it would at least make the distribution of taxes fairer before adding new taxes on top. By contrast the revenue-raising strategy widely touted in the business community -- leaving the current income tax alone and adding a new national sales tax -- would only compound the current unfairness. While youre jotting down New Year's resolutions, you might remember to write the president and tell him he ought to put tax reform high on his agenda this year.