The W-2 step; the Democrats are right that the Social Security tax is unfair, but they're wrong about how to fix it

Washington Monthly, June, 1991 by James Bennet

More buck for your bang

There appear to be two main obstacles to the Democrats proposing this type of reform; you might call them the kids-only approach and the $80,000 attitude. The latest Democratic tax initiative, put forward by Gore and Rep. Tom Downey, falls into the kids-only trap. It dispenses its break in the form of beefed-up credits, based on the number of children a family has.

Calculations of Americans' tax burdens focus on families with children, and those numbers tend to drive Democratic tax policy. Like the Gore proposal, the successful reforms of 1986 and 1990 also aimed at expanding credits linked to the number of children in a given family. This is why, though the tax burden has dropped somewhat for poor Americans with children since 1985, it has continued to rise for those, like Karioka, who are childless. The kids-only approach certainly makes sense in principle-families with children deserve extra help. But Democrats have pursued this type of reform to the exclusion of assisting the childless, who, among Americans making less than $25,000, outnumber those with children by almost two to one. So far, Democratic tax reform has left the vast majority of low-income Americans doing an awful lot of work to take care of their fellow citizens' kids.

In one crucial respect, Gore's proposal is a major improvement on Moynihan's: Rather than offering virtually the same break to all, it discriminates among workers, concentrating benefits on poorer families. But, like the Moynihan plan, it still scatters its benefits way up the income scale, to families that pull in as much as $75,000 per year. Why? Because it's got an $80,000 attitude.

That attitude springs from the fact that, these days, the Democrats have gone a bit soft on the middle class. As Majority Leader Dick Gephardt put it after the budget negotiations last fall: "We have begun to redefine the debate from 'to tax or not to tax' to who pays, and is it fair?' This gives us a shot at reclaiming large groups of middle-class Americans who haven't been excited about Democrats for quite some time." The problem is, another term the Democrats have begun to redefine is "middle class" itself. When you ask Gephardt to whom he's referring, you get a glimpse into the mindset behind the Moynihan and Gore tax cuts: "Various definitions," he says. "It's hard to get great agreement. But we're certainly talking about people under $80,000. We're talking about the vast, broad majority of America that we believe to be the middle class."

Under $80,000. Vast majority, indeed. Only 7.6 million Americans make more than $53,400 per year. The vast, broad majority are closer to Clayton Karioka: Of the 133 million wage earners in the U.S., fully 67 million-just over 50 percent-make $15,000 or less. Seventy-one percent earn $25,000 or less. OK, you're thinking, but Gephardt probably means family income, not individuals' salaries. Fair enough. A family of four living in a big city may find it hard to make ends meet on $80,000. But these people already received tax breaks in the eighties. Today, society could best relieve their financial worries not through changes in the tax code but through means like controlling college tuition and medical costs. And fundamentally, no matter how aggrieved they feel, such families are statistically not middle class. In 1990, the richest fifth of the population, for families of four, began at $76,000. In the statistical middle, people don't make lawyers' salaries or doctors' salaries-or even congressmen's salaries. The average for a family of four in the middle fifth in 1990 was $39,200, half the amount suggested by Gephardt.