President Reagan hit the road yesterday to sell his tax-overhaul proposal as a tax cut for average Americans, but it is not clear whether the anticipated reduction for middle-income taxpayers will be enough to rally grass-roots support as the president hopes.
Yesterday, members of the House Ways and Means Committee began questioning whether the tax cuts will be large enough to justify a major revision of the federal tax system and the resulting economic upheavals.
Reagan seeks to eliminate numerous tax breaks and use the money to reduce tax rates across the board.
His proposal, released Wednesday, quantifies the tax cuts only in terms of average percentage reductions for each income group, with no dollar amounts.
Treasury officials said, moreover, that these reductions are only theoretical, keyed to a hypothetical date more than 40 years from now, when the effects of the new proposal have filtered through the economy.
These figures, applied to other Treasury data, indicate that the average cut for a household earning $33,600, the expected median income in 1986, would be $172.97. This contrasts with Treasury Secretary James A. Baker III's testimony yesterday to the Ways and Means Committee that a "typical" family of four, earning $33,600, would save $394 in 1986 taxes under the president's plan.
Treasury officials cautioned that the figures are different because Baker picked a specific, real-world case, while the tax plan deals with average rate reductions within income categories.
In addition, they said, the data in the tax plan measures income differently than would a real tax system.
The president's plan uses a broader measurement of income that includes numerous assets in addition to taxable income. Treasury officials say the measurement in the plan better illustrates a family's economic worth than taxable income.
Nonetheless, calculations based on figures in the tax plan show that families earning from $15,000 to $100,000 would retain no more than an additional one-half of one percent of income, after taxes. Those earning $200,000 would retain an additional 2.2 percent, or four times as much.
Reagan presents the savings in average percentage tax cuts for income groups. By that measure, the largest benefit is at the low end of the scale.
The average cut for all families is 7 percent; for those earning less than $20,000, 18.3 percent; from $20,000 to $50,000, 7.2 percent; and $50,000 and up, 5.8 percent.
But in dollar terms, the winners are heavily concentrated at the top of the scale.
Applying the average rate reductions against other Treasury data, a household with annual income of $15,000 would save an average of $93.15 in the hypothetical year.
With an income of $20,000, the savings would be $109; with $30,000, savings of $154.44; with $40,000, savings of $205.92; with $50,000, savings of $197; with $60,000, savings of $236.88; with $70,000, savings of $276.36; with $80,000, savings of $315.84; with $90,000, savings of $355.32; with $100,000, savings of $541; with $200,000, savings of $4,494, or more than eight times the amount saved at $100,000.
Treasury officials said the average reductions in each income group are understated because one in five taxpayers will have a tax increase. The total increase in each group is averaged with the total cut to figure the overall effect, which in each case is a cut.
Rep. Richard A. Gephardt (D-Mo.), author of a Democratic tax-overhaul proposal, suggested yesterday at the first congressional hearing on the plan that middle-income families had lost ground to special interests in the plan.
"In the shift you made in the bill, it seems to me the losers are the middle class," said Gephardt, whose plan indicates more generous treatment of those earning between $30,000 and $40,000.
"The bottom line is, there is an overwhelming number of winners in every class," Baker said. "I really don't think your opinion is valid at all.