Relief from the Middle‐​Class Squeeze

February 10, 1998 • Commentary

The Republican Party is in danger of losing touch with middle‐​income Americans — the 21 million workers with earnings between $30,000 and $50,000 a year. They not only formed the foundation of the Reagan coalition in the 1980s; they abandoned the Democrats and gambled on the GOP in the landmark and landslide congressional elections of 1994.

Nixon once called those neglected voters the “silent majority.” Both parties claim to speak for them, but neither party seems to be listening to them.

The problem for the GOP is that, ever since the sweeping Reagan tax cuts of 1981, the Republicans have done little to help the middle class.

The latest figures from the nonpartisan Tax Foundation highlight that since 1980, despite a Republican in the White House for 12 of those 17 years and a Republican‐​controlled Congress for 3 of the 5 others — the tax bite on median‐​income families has continued to ratchet upward to 38.5 percent. Federal taxation is now at its highest peacetime level, as a share of Americans’ incomes, since the end of World War II.

Republicans have succeeded in balancing the budget all right — smack on the backs of the middle class.

Much of the escalating tax burden has, of course, been attributable to hikes in the regressive payroll tax. For most Americans, payroll tax increases have canceled out, nearly dollar for dollar, the benefits of the Reagan income tax cuts. Meanwhile, the federal gas tax has been tripled since 1980, state and local property taxes continue to climb and a multitude of obnoxious fees and assessments continues to grow.

Last year Rep. Dick Armey (R‐​Tex.) called this plight of American workers, “the middle‐​class squeeze.” Exactly the right diagnosis. But what is either party doing about it? Last year Republicans passed a niggling tax cut about one‐​third as large as the one they promised in 1994.

Yes, for families with young kids this is blessed relief — a $1,000 tax cut for a family of four. There are still millions of middle‐​class households without kids at home and without capital gains income that will angrily learn come April 15th that they get essentially nothing out of this tax bill.

If Republicans don’t get back to the idea of sweeping tax cuts for overburdened American workers, they don’t deserve the majorities that voters gave them in 1994.

There’s a bigger problem. Jack Kemp and Ronald Reagan taught us that tax rates matter, too. Families with incomes between roughly $40,000 and $65,000 a year face the highest marginal tax rates of any income group today. They pay 28 percent federal income tax, 15 percent payroll tax and an average of 5 percent state income tax. Add it all up and they’re shelling out to the tax collector 48 cents on every marginal dollar earned. If a stay‐​at‐​home mother wants to get back in the workforce, full‐ or part‐​time, she’s paying nearly 50 percent tax on her first dollar of income earned. Counting the costs of child care, she may only bring home 20 cents on the dollar. Often she can’t afford to work.

This is tax fairness?

Republican Senator Paul Coverdell of Georgia, who is quickly gaining a reputation as a fearless crusader for solid conservative ideas, wants to relieve the middle‐​class squeeze. He would raise the income threshold on the 15 percent income tax bracket. Ways and Means Committee chairman Bill Archer likes this idea, first proposed by economist Larry Kudlow and me in the latest issue of National Review.

Under current law the 28 percent tax bracket creeps up on single workers at $25,350 — on married couples, at $42,350. The 15 percent bracket should be stretched to $35,000 for singles and $50,000 for married couples. This would reduce federal revenues on a static basis by $25 billion a year — or roughly the amount of the budget surplus now being projected. The principle here is simple: all middle‐​class families in America should be in the 15 percent tax bracket, not the 28 percent bracket. In fact, Congress should eventually expand the 15 percent tax bracket to apply to all Americans with earnings below $65,000 a year — the income level at which people stop paying payroll taxes.

Republicans have shown repeatedly in recent years that they are squeamish when it comes to being accused of providing “tax cuts for the rich.” This plan would stop the Washington class envy lobby dead in its tracks. How could they demagogue against a tax plan the benefits of which are aimed squarely at the $30,000 to $50,000 a year worker?

This plan would provide middle‐​class workers meaningful — not symbolic — tax relief. A single filer with an income of $32,000 a year would receive an $864 tax cut. A married couple with taxable income of $48,000 a year would receive a tax cut of $734.

Newt Gingrich and Trent Lott have announced that Republicans will cut taxes again in 1998. The bigger the tax cut, the better. But please, no more gimmickry. No more “targeted” education tax credits, no more loopholes and complexities. H&R Block is the primary beneficiary of a tax cut like that. Tax cuts in 1998 should make the tax code simpler and the tax burden lighter.

If Republicans don’t get back to the idea of sweeping tax cuts for overburdened American workers, they don’t deserve the majorities that voters gave them in 1994. Bill Archer and Paul Coverdell are on the right track.

About the Author