ShareWare OnLine 2/ShareWare OnLine Volume 2 (CMS Software)(1993).iso/infor/econpl.zip/PART6.TXT

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                              Restoring Fairness


Distributional Effects of the Spending Proposals

Some of the outlay proposals in the Administration's program have effects
that spread across the population. Others, however, have identifiable
effects on incomes, or on services targeted to particular income groups.
We have sought to impose the principle of fair contribution so that the
burden is concentrated on those most able to bear it. Similarly,
investment programs are targeted to those in need and pursue greater
productivity growth and standards of living for the population as a whole.

Table 3-4 shows the distributional effects of those program increase
proposals that are amenable to such analysis including Head Start, the Job
Training Partnership Act and the Job Corps, housing assistance, WIC,
dislocated worker training, one-stop career training centers, and veterans
medical care and hospital construction. Also included are three spending
reductions: Federal employee health benefits; Federal employee pay; and
the premium increase for Medicare Part B. Table 3-4 reflects 1997 spending
levels deflated to 1994 dollars. This year was chosen to correspond to the
fully implemented tax proposals displayed on subsequent tables. The total
of analyzed spending increases is $8.9 billion; the total of analyzed
spending reductions is $6.6 billion. Not all of the spending proposals
constitute changes to the disposable incomes of families. Some spending on
services, such as Head Start or Job Corps, would brighten the economic
futures of participants but would not change their families' incomes
directly.

Table 3-4 shows that families and single people with incomes below $10,000
benefit from $3.6 billion of additional spending. Those with incomes below
$20,000 benefit from an estimated $4.9 billion. Further, these groups will
benefit from almost all of the proposed increases of $8.2 billion in
outlays for the earned income tax credit, food stamps and the low-income
home energy assistance program (LIHEAP) when tax policies discussed below
are fully phased-in. Table 3-4 also shows that families with incomes above
$50,000 would bear virtually the entire burden of the budget savings. Most
of the savings are the result of the proposal to hold Federal salaries
below projected levels.

Although Table 3-4 includes a significant proportion of the proposed
changes in outlay programs, many proposals are not reflected. Stimulus
outlays for 1994 are not included. Some spending proposals would not
affect beneficiaries directly, such as Medicare changes that would affect
providers but not beneficiaries, and so are not included. When proposals
are intended to affect the economy as a whole or everyone more or less
equally, such as increased spending to improve the national
infrastructure, no attempt was made to distribute the effects by income
level. In a few cases, such as enterprise zones, education proposals for
schools in low-income neighborhoods, or community development block grants
(CDBGs), there were no bases for a reasonable distribution by income
level, and they were omitted from the analysis. The outlay programs not
included in this analysis are a substantial part of the overall
recommended policy changes, and so these estimates of the ultimate
distributional impact should be used with caution.


Distributional Effects of the Tax Proposals

The impact of the revenue raising proposals is shown in Table 3-5. As
discussed above, the major revenue changes in the deficit reduction
proposal are higher rates under the personal income tax, removal of the
earnings cap for the Medicare tax, higher rates for the estate tax, and
increased taxation of large businesses. These taxes primarily affect
wealthy individuals and have virtually no impact on taxpayers in the
lower- and middle-income groups.

To control pollution and alleviate our dependence on imported oil, the
package also contains a broad-based energy tax. The energy tax by itself
would place a relatively heavy burden on many taxpayers with limited
ability to pay. For this reason, the introduction of the energy tax was
combined with several offsets, including an expansion of the earned income
credit and an increase in transfers under the Low-income Home Energy
Assistance Program (LIHEAP) and under the Food Stamp program. These three
offsets eliminate any increased burden at the low end of the income
distribution. Middle-income families experience only a slight increase in
their tax liabilities, and the tax burden rises with family income
thereafter.

Table 3-5 summarizes the combined impact of all revenue raising provisions
in the stimulus, investment, and deficit reduction combined, including the
offsets to the energy tax. This table confirms that our plan distributes
the tax burden in a fair way, ensuring that low-income families are spared
any tax increase and that middle-income families experience only a slight
rise in their taxes; most of the burden falls on higher-income households.


Overall Distributional Effects of the Program

Table 3-6, which combines the tax and outlay changes as a percentage of
pre-tax income, shows that the effects of the Administration's program on
the two sides of the budget ledger are consistent and mutually reinforcing.

The lowest income category receives both a small tax cut and a benefit
increase under the administration's program. Other income categories up to
$30,000 have little net tax change. At higher income levels, there are
spending cuts that are quite small, but tax increases that are more
substantial.

The program effects identified here, however, will not affect all families
within any income group in the same way. In fact, many families will not
be affected at all by any of the program changes, while others (Federal
employees, low-income program beneficiaries) may be affected by several.
Thus, the ultimate impact on the population may vary considerably from
family to family. On the whole, the burden is borne mainly by those most
able to bear it.



Table 3-4. Change in Federal Outlays for Social Programs and  Federal Pay /1
(Positive numbers are additional tax revenues, negative numbers are outlays)
Family income       Amount (billions of dollars) As a Percent of Pre-tax income
$0 to $10,000                               3.6                             3.7
$10,000 to $20,000                          1.3                             0.5
$20,000 to $30,000                          0.0                             0.0
$30,000 to $50,000                         -0.8                            -0.1
$50,000 to $75,000                         -0.9                            -0.1
$75,000 to $100,000                        -0.6                            -0.1
$100,000 and more                          -0.6                            -0.1
 Total                                      2.3                             0.1

1/1997 spending levels deflated to 1994 dollars. Includes increases of
$8.9 billion and savings of $6.6 billion for a net proposed change of $2.3
billion. Increases are for Head Start and associated nutrition programs
($3.4 billion), youth titles of JTPA ($0.8 billion), housing programs
($1.1 billion), WIC ($0.9 billion), dislocated workers ($1.8 billion),
one-stop career shopping ($0.2 billion), and veterans medical care and
construction ($0.6 billion). Savings are for lower Federal salaries ($3.0
billion), Federal employees health benefits ($0.02 billion), and higher
Medicare premiums ($3.6 billion).



Table 3-5. Change in Federal Taxes and Certain Transfer Payments /1
(Positive numbers are additional tax revenues, negative numbers are outlays)
                      Amount            As a Percent      As a Percent
                    (billions            of Pre-tax        of Post-tax
Family income           of                  income           income
                     dollars)
$0 to $10,000         -0.2                   -0.2             -0.2
$10,000 to $20,000     0.0                    0.0              0.0
$20,000 to $30,000     0.4                    0.1              0.1
$30,000 to $50,000     4.4                    0.5              0.6
$50,000 to $75,000     7.6                    0.7              0.9
$75,000 to $100,000    5.9                    0.7              0.9
$100,000 to $200,000   8.0                    0.7              0.9
$200,000 and more     34.3                    2.9              3.7
Total                 60.5                    1.0              1.3

1/Effects as if policies were fully phased in CY 1994. Transfer payments
include increases of $3 billion for Food Stamps and $1 billion for LIHEAP.



Table 3-6. Combined Effects of Tax and Transfer Changes
(Positive numbers are additional tax revenues, negative numbers are outlays)
Family income /1          Amount (billions)     As a Percent of Pre-tax income
$0 to $10,000                    3.8                            4.5
$10,000 to $20,000               1.3                            0.4
$20,000 to $30,000              -0.3                           -0.1
$30,000 to $50,000              -5.2                           -0.6
$50,000 to $75,000              -8.5                           -0.8
$75,000 to $100,000             -6.4                           -0.7
$100,000 and more              -42.8                           -1.8
Total                          -58.2                           -1.0

1/ The concepts of family income used in the tax and spending tables above
are not strictly comparable. The tax table reflects the Department of the
Treasury's concept of economic family income. The outlay table reflects
the concept of money income employed by the Bureau of the Census. To
combine the tax and outlay effects, amounts of taxes and outlays were
compared to aggregates of Treasury family income by income level from the
tax table.