THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Monday, January 15, 1996 TAG: 9601130203
SECTION: BUSINESS WEEKLY PAGE: 04 EDITION: FINAL
TYPE: Editorial
SOURCE: Ted Evanoff
LENGTH: Medium: 83 lines
Before you know it, we'll be coming up on the 83rd birthday of that venerable American institution known as the federal income tax. Yes, we're coming up on Feb. 25, the day in 1913 the 16th amendment was cast in stone.
The amendment gave Congress what the Supreme Court had denied: permission to levy an income tax, which Washington back then plainly wanted to help pay for something dear to Tidewater, the build up of the U.S. Navy. Ever since we've been not merely Americans, but income-tax paying Americans.
Presidential hopefuls snipe at the tax system now, try to improve their standing in the polls, and with good reason. Steve Forbes made the flat tax the center of his campaign and climbed out front of Bob Dole in early polls in Arizona.
Forbes would tax all earned income at 17 percent, end deductions for mortgage interest payments and charitable gifts, and end taxes on investment income, capital gains and inheritances. No doubt all those retired folks around Tempe love the idea. So do their kids.
Most of the GOP rivals brandish the flat tax in one form or another, but don't confuse a flat tax with lower taxes.
For that matter, don't bet next week's wages on a tax cut. Whether we get a flat tax or, most likely, keep the present system in place until after birthday 84 rolls around, we've boxed ourselves in on taxes. They're not going down.
On any given pay day in Tidewater, almost 640,000 civilian workers collect wages that in total surpass $14.5 billion a year. It works out to roughly $30,000 in annual income for the average home in Hampton Roads.
Tax cuts surely would boost a family's spending power, considering average wages in Tidewater, $445 a week last year, rose only 2.5 percent in 12 months.
Meanwhile, the tax burden - the total amount you pay in local, state and federal taxes and fees, including the hidden taxes rolled into the purchase price of everyday items like gasoline and imported shirts - has reached a record proportion.
Throughout the country, the tax burden represented 39.4 percent of all income earned in the United States. This typical $30,000 household has roughly $18,000 in hand after $12,000 in fees and taxes are taken out.
Why we've boxed ourselves in on taxes becomes evident when you look at where government revenue actually goes. Count the dollars spent by every unit of government in the country, from the pensions paid to military veterans to the erasers bought by the Virginia Beach public schools, and you'll find government in America spends about $2.4 trillion a year.
These trillions buy nuclear aircraft carriers, school erasers, airport runways, fire trucks and a wide array of other physical objects. Economists have coined a name for the spending on physical objects. They call it real government spending and say it totals about $1.2 trillion a year nationwide.
This looks like a lot of money. Oddly enough, measured in a certain way, it isn't. The total value of all the goods and services produced by everyone in the nation is called the gross domestic product. Real government spending, that $1.2 trillion, has been falling for a generation. It now represents the smallest share of GDP since 1930, according to inflation-adjusted figures calculated by Wall Street economist H. Erich Heinemann.
What rivals real government spending are transfer payments: items such as welfare and Social Security, veteran benefits and Medicare. They've risen for a generation. Government now spends $1 trillion a year on transfer payments, chiefly at the federal level.
Politicians can't cut real government spending much deeper. People clearly prefer the services they have.
This was evident last fall in Virginia when voters snubbed the conservative agenda of Gov. George Allen.
Nor do voters want Social Security or Medicare and Medicaid whittled away, even though the three programs are the lion's share of transfer payments, representing 38 cents of every $1 in the federal budget. The amount far surpasses the next largest items in the budget- defense spending (16 cents) and interest on the national debt (14 cents).
Where that leaves us is in a box. Real government spending is at the lowest point since the start of the Great Depression. Medicare will go bankrupt in seven years at the current rate.
And the Social Security system will be strained to the breaking point when the baby boomers finally retire. Logic dictates you don't cut taxes. by CNB