Clinton didn’t want to scare Wall Street, so he avoided populist rhetoric in his sales pitch. But more than $100 billion in savings comes from the top 1 percent of Americans, mostly successful Yuppies. (Old-money types get off easier because inheritance taxes are barely touched.) Couples with a gross income of roughly $170,000 or more will see their income taxes start to go up. At more than $300,000, there’s a 10 percent surtax. But even this 39.6 percent rate is still short of the 50-plus tax brackets for the rich that existed before 1986. Under a last-minute compromise, wealthy taxpayers will have two additional years to pay the extra amount owed for 1993. The corporate rate is up only 1 percent, and some small-business incentives got thrown back in. _B_Reality check:b With the rich seeking shelters, tax revenues may be less than Democrats expect.
Yes, you can actually believe the president: the middle class is barely nicked. After senators from energy-producing states scotched a wider BTU tax, Congress settled on a gas tax. But Senate pressure kept it at a measly 4.3 cents a gallon, which raises less than a third of what Clinton sought. Most people who drive to work will pay between $20 and $30 more in taxes this year, and $80 to $100 next, a little more for those with long commutes. That’s it (for now, anyway) for the middle class. Reality check: With gas prices low, tax will barely be felt.
The $21 billion expansion of the Earned Income Tax Credit is one of the lesser-known (thanks to its boring name) but most historic parts of the package. It addresses one of the appalling anomalies of modem life: a system that rewards the poor for quitting work and going on welfare. Now, finally, there is a real incentive–namely, a few hundred dollars a year–to stay on the job. This provision also makes sure that truly vulnerable working people don’t end up poorer because of the gas tax. _B_Reality check:b No substitute for the welfare reform Clinton also promised.
You know the racket: professional people go out to lunch or to pointless conferences in Las Vegas, and their companies get to write off 80 percent. That means other taxpayers are picking up part of their tab. Now it will be 50 percent, though as a partial compensation some hotel and restaurant workers will get a last-minute tax break. After the write-off was reduced from 100 percent to 80 percent in 1986, lobbyists warned it would wreck the restaurant and travel businesses. It didn’t. For all the bellyaching, this change probably won’t, either. Reality check: Corporate perks may actually increase as a substitute for higher, taxable pay.
Until now, companies have been able to write off the cost of their high-priced lobbyists and the multimillion-dollar salaries they pay their executives. In other words, taxpayers have helped subsidize special-interest pleading and executive compensation. Not anymore. Under the bill, corporations will have to pay the full cost of hiring lobbyists, and salaries that exceed $1 million a year will not be deductible as business expenses. The deductibility of private-club dues and travel expenses for spouses joining in on business trips will also be ended. Will this change the culture of Washington? Will it end obscene pay for the boss? Probably not, but it might make it a little harder to elbow one’s way to the trough. Reality check: Lobbyists just won’t call themselves lobbyists anymore.
The elderly got off relatively easy for now. Until now, half of social-security benefits have been tax-free. In the new plan, softened for seniors under pressure from Arizona Sen. Dennis Concini, couples making more than $44,000 and singles taking in more than $34,000 (which generally puts them in the top 13 percent of retirees) will find 15 percent of their benefits tax-free. But as a result of a last-minute understanding with Rep. Marjorie Margolies-Mezvinsky and Sen. Bob Kerrey needed to win passage last week, the whole issue of entitlement reform will be opened up again at a series of meetings in the fall modeled after the Little Rock economic summit. That’s when the real hits on the elderly may begin. _B_Reality check:b To make meaningful cuts, seniors will eventually have to pay more.
