Federal taxes on the poor increased dramatically over the last five years despite three years of tax cuts passed in 1981, according to a study of federal tax policy by the Children's Defense Fund.
"Despite the massive tax cut passed in 1981," the study said, "the aggregate federal taxes paid by poor families increased 58 percent from 1980 to 1982. Taxes on the working poor have skyrocketed while taxes on the well-to-do and on profitable corporations have declined dramatically."
The fund, a nonprofit advocacy group for children and the poor, said its study would lay to rest the "myth" that the poor pay little or no taxes.
The group, timing the release of its survey to the deadline for filing tax returns on 1984 income, said the Reagan administration has reversed the trend of adjusting personal exemptions, the standard deduction and the earned income credit for the working poor to be certain that the poor pay little or no taxes.
It said that inflation, therefore, is increasing the amount of income considered poverty-level, increasing the number of the poor paying taxes and the amount they must pay.
Inflation has "driven up the wages on which the poor are taxed without giving them more real dollars in income or a higher standard of living, and without adjustments in the tax system to compensate," the report said.
It also cited the perennial problem of the Social Security payroll tax, which is deducted from paychecks at the same rate, no matter how low a worker's income.
President Reagan promised yesterday that the tax-simplification plan he expects to reveal in May would cut most Americans' income taxes.
According to the Children's Defense Fund study, "The Impact of Federal Taxes on Poor Families," almost half of the 34.4 million individuals and families living below the poverty level -- $10,613 for a family of four -- paid federal taxes in 1982. If the poverty level were based on after-tax income, 3.2 million would have fallen below the poverty level simply because of their tax payments, the study said.
Citing as an example a mother with three children who earned near poverty-level income of $11,456 and paid $1,384 in federal taxes in 1984, the report concluded that "Jane Doe paid more federal taxes than Boeing, General Electric, Du Pont, Texaco, Mobil and AT&T altogether paid in federal income taxes in 1983 although these huge corporations earned $13.7 billion in profits."
Working families with poverty-level wages paid between 9 and 12 percent of their income in combined federal taxes in 1984, according to the report. Single-parent families have an even greater tax burden than two-parent families because they receive fewer tax deductions, the report said.
"Increasing taxes on the poor and near poor lessens the money available to families for supporting children," according to the study's authors, Mary Bourdette and Jim Weill. "The elderly have special rules giving them extra tax breaks. Substantially raising the taxes of the poor and near-poor thus primarly increases the taxes of younger workers, those most likely to have young children and less income to support them.
"In this respect," the study said, "the tax policy of the last four years has virtually been a tax on childhood -- an antifamily tax policy that mirrors the budget cuts which have also disproportionately hurt children."
The report said the rich have benefited from "massive tax breaks" and the middle class has had "modest relief" in the administration's three-year Economic Recovery and Tax Reform Act of 1981. But the authors said this policy of lower tax rates neglects the poor by failing to adjust personal tax exemptions, standard deductions, and the earned income tax credit to give them similar relief.
That failure "more than offset any positive effect of the cut in income tax rates," according to the study.
"This was a major shift in policy," it said. "Throughout the 1960s and 1970s Congress attempted in several tax laws to eliminate the income tax burden on families whose incomes were below the poverty line by increasing the personal exemption and standard deduction and by enacting and increasing the earned income tax credit."
But the personal exemption has remained at $1,000 for all taxpayers, regardless of wealth or poverty, from 1979 to 1984, the report noted.
The zero bracket amount, often called the standard deduction, similarly did not change from 1979 to 1984.
The report recommended expanding and indexing the earned income tax credit for the working poor and adding an allowance for dependents. The authors also suggested increasing the zero bracket amount to benefit poor people who do not itemize deductions, and adjusting it for single heads of households to equal the amount given married couples.
The study comes a week after Sen. Daniel Patrick Moynihan (D-N.Y.) renewed his call for changes in the tax code to "construct a family policy" that would not tax families "to the point where they are officially poor and potentially dependent" on welfare.