December 1, 1993

OBRA 1993: What Taxpayers Can Expect in 1994

Download Special Report No. 26

Special Report No. 26

Executive Summary The federal government estimates that the tax increases in the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) will raise about $35 billion in 1994. The government estimates that the Act will impose a $268 billion tax burden on the American public over the 1994-1998 budget cycle.

The estimated additional 1994 total tax burden corresponds to a per-family average of $298. As advertised by the Clinton administration, the individual income tax provisions target most heavily taxpayers in the upper end of the income scale. However, about 46 percent of all taxpayers will pay higher individual income taxes as a result of OBRA ’93.

The provisions in OBRA’93 that pertain to the taxation of Social Security benefits account for all of the individual income tax increases for taxpayers with under $115,000 in annual income. The key provision increased from 50 percent to 85 percent the amount of Social Security benefits subject to taxation.

The distribution of the overall OBRA’93 tax increases are more evenly distributed across income classes than the individual income tax provisions alone. The 4.3 cent per gallon gas tax increase, which took effect October 1, accounts for most of the projected revenue from the lower income groups.

The lower income groups can also expect to bear indirectly a large portion of the tax increases affecting business. As businesses attempt to absorb the higher cost of taxation, this burden will come in the form of reduced employment opportunities, slower wage growth, or slower growth in retirement plans and pensions. The distribution of the business tax provisions assumes the income from wages and investments bear the additional tax burden equally.