US Taxes Hit Poorest Hardest

GUESS WHO faces the worst tax burden in the United States? Probably the poor - those who make less than $10,000 a year.

On average, they paid nearly half of their 1986 income (49.54 percent) in taxes to the various governments - federal, state, and local, according to a new study by the Tax Foundation, a nonprofit research organization primarily funded by businesses.

The study uses the latest statistics available. It shows the prosperous, those making $90,000 or more, paying a slightly higher percentage of their income - 51.59 percent. But the 1986 tax reform slashed the marginal federal income tax rates sufficiently that it seems likely they are having to dig somewhat less deeply into their pockets than are the poor.

That 1986 reform also knocked some 12 million of the poor off the federal income tax rolls. They weren't sending much directly to Uncle Sam in income taxes anyway. Since then, however, a number of excise and sales taxes have been boosted on such products as gasoline, cigarettes, and liquor. These taxes do hit the poor hard. The working poor also suffered when social security tax rates were raised.

As a whole, the latest tax changes have probably been a wash for the poor but of benefit to the well-to-do. That won't be known for sure until another such study is done, perhaps in a few years.

In any case, Paul Merski, director of special studies at the Tax Foundation, comments: ``There seems to be more that should be done in the tax system to lighten the burden at the lower end of the scale.''

Most Americans probably think of their tax system as progressive - taxing those able to afford it a larger proportion of their income. The argument for a progressive tax system is that the well-to-do can afford to pay more in taxes and that they benefit more from government services. For example, the state protects their greater wealth.

Actually, however, the overall US tax system is basically proportional to income. Most people, no matter whether they're poor or upper middle income, pay about a third of their income in taxes of all sorts.

In Mr. Merski's study, the highly prosperous bear a high tax burden partly because it is assumed they pay a large proportion of corporate income taxes. Corporations themselves don't really pay taxes. The taxes charged them are passed on in some mix of higher prices (paid by consumers), lower dividends (shareholders), or lower wages and benefits (employees). Economists, using heavily mathematical studies, have long disputed which group pays most.

In the Tax Foundation study, the assignment of most corporate taxation to shareholders means the rich get hit because the well-to-do own a disproportionate amount of corporate stock.

That is changing, however. In the aggregate, pension funds are holding an increasing share of total US corporate assets. At the end of 1988, private and public pension funds held nearly 25 percent of all corporate equity. This has increased steadily since 1950, when pension funds held less than 1 percent of total corporate equity, and 1970, when it was about 10 percent.

The poor, however, are not often entitled to corporate pensions.

A Coalition Against Regressive Taxation warned Congress only last week that higher excise taxes are ``a quick and dirty fix'' that would penalize low-income families.

Though taking taxes from the poor with one hand, governments give money to them with the other. The foundation study includes in their income the welfare payments, medicare services, food stamps, and other ``income'' transferred to the poor.

Those making $10,000 to $19,999, hardly the affluent, pay about 34 percent of their income in taxes. Those earning $20,000 to $59,999 pay slightly less, 31 or 32 percent of their income in taxes. Those in the $60,000-to-$69,999 bracket pay 35 percent. The burden drops again for those in the $70,000-to-$89,999 range, to 31 percent.

The study could do two things. It should give middle-income taxpayers a better sense of proportion of their real tax burden. And it should also be a guide to legislators.

``Individuals and policymakers must understand clearly how the tax burden affects households of various income levels in order to approach any tax modifications equitably and efficiently,'' the study says. If taxes are to be raised, legislators should understand clearly which group will bear the burden. -30-{et