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IRS Study Cited As Proof Reagonomics Is Working

March 9, 1985

WASHINGTON (AP) _ Administration supporters are citing an increase in the number of upper- income Americans and their share of the federal income-tax burden as proof that President Reagan’s economic policies are working.

A new report from the Internal Revenue Service shows the number of people with incomes above $75,000 a year rose by 50 percent since 1980 and that they paid 25.6 percent of income taxes in 1983. That compared with 20.5 percent in 1980, an increase of 25 percent.

″The figures confirm what was argued in 1981″ when Reagan’s tax program was passed, Chris Frenze, an analyst for Republican members of Congress’ Joint Economic Committee, said Friday. Those arguments held that if tax rates on upper-income Americans were reduced considerably, they would transfer their money out of tax shelters into productive, job-creating investments.

″The evidence is clear″ that is happening, said Rachelle Bernstein, manager of tax policy for the U.S. Chamber of Commerce. The chamber has been a vocal supporter of Reagan’s tax policies.

But another analyst, Joseph Minarik of the Urban Institute, cautioned against jumping to conclusions. He said a considerable part of the growth in the number of upper-income people - and, thus, in their share of the tax burden - was caused by general economic growth and inflation.

″It would be nice to believe that the number of taxpayers making over $75,000 a year has been increased permanently″ because of the tax cuts, he said, ″But it would be too optimistic to say that now.″ Minarik suggested a major part of the income game for wealthier people was due to a booming stock market that produced large increases in capital gains.

Ms. Bernstein and Frenze agreed that part of the income boost was caused by inflation and economic growth, but not to the extent that Minarik implied.

The new figures released this week were the first to be based on returns filed for the 1983 tax year. They continue the pattern noted in 1982, the year the first major portion of Reagan’s tax reduction took effect, of a shift in the total income-tax burden to the wealthier.

Reagan’s program, enacted in 1981, included a 23-percent cut in tax rates for most taxpayers. But it also provided an extra boost to upper-income people by slashing the maximum tax rate on investment income from 70 percent to 50 percent.

Democrats say the program is unfair to lower-income people, who, because the size of the tax cut was proportional to taxes paid, realized far fewer dollars from the reduction than did the wealthy. (For example, a 23-percent tax cut saves $230 a for a person who pays $1,000 in taxes and $23,000 for one paying $100,000). Republicans say that is fair because it is the wealthy who can use tax cuts to invest in ways that benefit the economy.

The IRS report showed that:

-People making over $75,000 filed 1.7 percent of the returns for 1983, up from 1 percent in 1980. They paid 25.6 percent of the taxes. Their total federal income taxes rose 38 percent over the period.

-Those earning between $19,000 and $75,000 filed 38.5 percent of the returns (up from 33 percent) and paid 62 percent of the taxes, the same as for 1980. Their tax burden was up 10 percent.

-Taxpayers making less than $19,000 a year filed just under 60 percent of the returns for 1983, down from 66 percent for 1980. They paid 12.3 percent of the taxes, down from 17 percent. The total tax burden for this group dropped almost 22 percent.

The IRS report dealt only with federal income taxes. It did not consider two other major economic changes that have taken place during the Reagan years. Those changes, a Social Security tax increase and reductions in the growth of various spending programs, fell disproportionately on those at lower incomes.

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