Special Report No. 26
Executive Summary The federal government estimates that the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. 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 taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. 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 taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. 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.Share