Occasionally, we all have those terrific moments when The Light Bulb goes on overhead and things or events that just an instant earlier had not made any sense suddenly fit together in our minds.
A few years back, The Light Bulb went on for me when sales of one brand of low-calorie beer, which had generally foundered because the product was almost universally disparaged as "sissy" beer, suddenly took off. Miller's TV campaign, featuring massively undainty and aggressively masculine ex-jocks enjoying Lite Beer, made that beverage, I finally realized, acceptable to sports fans everywhere.
In the May 6 issue of U.S. News and World Report, on page 80, I saw another Light Bulb. This time, what is graphically explained is why 1985 will almost surely be the year the federal tax system is made simpler and fairer. Consider that the federal income tax, which, according to a March 1972 national Gallup survey conducted for the Advisory Commission on Intergovernmental Relations, had been chosen as "the fairest" of the major taxes citizens paid, had become, according to a companion survey in March of 1984, "the least fair tax" to Americans.
On page 80 is one very good reason why: two-thirds of the $19 billion not paid in federal income tax because of the capital gains exemption goes to just 360,000 Americans, all of whom make more than $100,000. This is not, please understand, the polemical ranting of some left-wing, pinko chic. No, this is page 80 of U.S. News, a magazine that can be found in the waiting rooms of virtually every dentist in America.
The source for this bombshell is Congress' Joint Committee on Taxation, which has published what various tax expenditures cost the Treasury in unpaid taxes and what it would cost all of us, in indirect expenditures, to accomplish these same goals. According to the Joint Committee on Taxation, there were just over 96 million returns filed in 1983, of which one-tenth of 1 percent, or 96,000 happy Americans, reported incomes of over $200,000 and qualified for a capital gains exclusion for the grand total of $10 billion.
Under existing law, unearned income from capital gains is taxed at a rate less than half the marginal rate that now applies to income earned from salary and wages. This, of course, means that the federal government prefers to reward somebody who has shown the admirable initiative to inherit a portfolio of stocks and bonds from which he earns $10,000 at the expense of an unchic single parent who earns that same amount after 18 months of flipping hamburgers at the minimum wage.
In their Fair Tax Bill, Sen. Bill Bradley (D-N.J.) and Rep. Dick Gephardt (D-Mo.) proposed to tax capital gains at the same rate as other income, which would seem to make sense. And you can be almost certain that the administration will adopt an identical provision in its bill due later this month. Ronald Reagan is serious about making the Republicans the nation's majority party. To achieve that, he must first rid the GOP of the Daddy Warbucks image which has dogged it, not without justification, since the days of Mark Hanna. And what better way to clean up the Republicans' act- while diverting attention to unpopular budget cuts and other unpleasant news -- than by championing the fair and simple tax?
The graphs on page 80 say an awful lot about what's wrong with our federal tax system and why Democrats ought to be lined up behind the Bradley-Gephardt bill.