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1 Arthur Hall, OBRA 1993: What Taxpayers Can Expect in 1994 1 (1993)

handle is hein.taxfoundation/srcgxz0001 and id is 1 raw text is: TAX 'il~ FOUNDATION December 1993, No. 26 OBRA 1993: What Taxpayers Can Expect in 1994 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. Table 1 shows Tax Foundation estimates of the total tax increase for 1994 and how the tax burden resulting from OBRA'93 will be distributed among different income classes in the U.S. Figure 1 shows for the nation as a whole the increase in effective marginal tax rates for different categories of individual income. Income earned from business and investments face the largest increase in effective marginal tax rates. 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 OBIRA'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. Thc 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 arc 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 lorm of reduced employment opportunities, slower wage growth, or slower growth in retirement plans and pensions (as evidenced by the higher effective marginal tax rate on dividend income shown in Figure 1). The distribution of the business tax provisions assumes the income from wages and investments bear the additional tax burden equally. The Biggest and Smallest States fable 6 shows the increased federal tax burden of each state as a result of the tax increases in OBRA'93. It also shows how the total burden averages out among the families residing in each state, and how the families comparc with families in other states. Figure 1 Increase in Lfjective Marginal Income Tax Rates for Various Categories of Individual Income as a Result of OBRA'93 3.0 25 0 a 2.0 a) CM C 1.5 n 1.0 0 C) _o C) '0 * Adjusted Gross Iiuonmc, i.c., gross incone from all sourccs not specifically excluded, mnutls crtain dcdnuLIons (primarily business cxpcl'scs). Source: Tax Fioundation. By Arthur Hall Senior Economist Fax Foundation -4 <

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