Taxpayers really haven't been shirking - tax revenues increasing - Editorial

Nation's Business, Oct, 1992

Outgo persistently ahead of income remains a problem for governments at all levels. The federal deficit continues to soar. The federal deficit for the 1991-92 fiscal year is expected to be $370 billion to $400 billion after reaching a record $269 billion last year. State and local governments throughout the country struggle to close income/spending gaps.

Those problems have raised the question of whether taxes should be increased to maintain existing levels of government services. The issue figures in this year's election campaigns ranging from local legislatures to the presidency of the United States.

The basic tax-increase argument holds that federal tax cuts of the 1980s and successful grass-roots movements against higher taxes at the state and local levels have deprived governments of sufficient revenues to maintain needed services. It is now time to reverse those trends, that argument goes.

But the chart on this page offers a different perspective. It depicts the U.S. Tax Index, which was developed by the nonpartisan Tax Foundation to show trends in tax revenue at the three principal levels of the government.

Using 1982 as a base of 100, the chart shows that the index reached a record level of 185 in mid-1992, meaning that total tax collections are now 85 percent higher than they were in 1980. That certainly does not suggest that the tax collector has been suffering acute deprivation over the past decade.

Consider the individual elements of the index: Since 1980, personal income taxes are up 64 percent; taxes on corporate profits, 226 percent; sales and indirect business taxes, 93 percent; contributions for social insurance, 203 percent; and all other taxes, including estate, gift, and personal-property taxes, up 97 percent.

The Tax Foundation points out that the total tax-revenue index rose an average 6.4 percent a year over the past decade, compared with a 2.5 percent average increase in personal income and a 3.9 percent annual average growth in the Consumer Price Index.

And although it can often be said that higher tax revenues stem from economic growth and do not increase individual or company burdens on the same number of dollars, that is not the case in the present fiscal climate. "Because of continued weak economic growth," the Tax Foundation says, "the bulk of recent tax-revenue growth is actually the result of legislated tax increases at both the federal and state levels."

The most recent federal step in that direction was the 1990 budget bill increasing taxes by $164 billion over five years, the foundation says. It adds that "states have collectively legislated $35.3 billion worth of tax increases since 1990."

The debate over tax increases is certain to continue beyond this year's elections. Those on both sides of it should keep in mind the trends in the overall tax index and in the specific taxes that make it up, the extent to which this index has outpaced income and the CPI, and the recent history of stiff tax increases at all levels of government.

Those statistics make a highly persuasive case for turning to the spending side of the ledger for the solution to revenue shortfalls.

At the federal level, it has been obvious for some time that the key to deficit reduction is reining in the open-ended entitlement programs that constitute the fastest-growing component of federal spending. The government must pay these benefits to all who meet current eligibility standards, and total spending must continue to rise to meet those demands. Similar situations exist at the state and local levels.

Entitlement payments are so big and go to so many people that they have become a critical political factor. Fear of ballot-box reprisal remains a roadblock to reform.

But the problem can only be avoided for so long. The sheer weight of the total entitlements bill must eventually overcome political apprehensions about reducing it. There is, after all, little political gain to be realized from the bankruptcy of programs that provide benefits to significant numbers of voters. But these programs are already running well ahead of the ability of the federal government and many state governments to maintain them. They must be addressed within the context of available funds and the tax burden that individuals and businesses already bear.

The trends depicted in the chart above are ample evidence that taxpayers have certainly done their duty. It is now up to public officials to find the courage needed to do theirs.