STATEMENT OF RICHARD TROTTER, ASSISTANT PROFESSOR OF POLITICAL
SCIENCE, RUTGERS UNIVERSITY

The major principle behind taxation is to provide the government with revenue. The major principle behind the so-called progressive tax system is to provide for a more equitable distribution of income to compensate for the inequities caused by the economic market place without destroying the investment potential of the business sector of the economy. In studying the need for tax reform the committee should address itself to several questions: (1) Is the tax system really progressive? (2) Does the very progressiveness of the system give more benefit to the wealthy? (3) Should the rate of tax be considered not only in terms of what is paid by the taxpayer but the burden that the payment of that amount imposes on the taxpayer? (4) Should the tax burden of the taxpayer be viewed not only in terms of the income of the taxpayer, but also in terms of the deferred income, i.e., Social Security, retirement plans, etc., as well as other taxes that are deducted from the individual's pay checks such as state or city payroll taxes? (5) Can the business sector be given less tax advantages without fundamentally destroying its investment potential to the economy?

I. IS THE TAX SYSTEM REALLY PROGRESSIVE?

The tax system is not progressive for two reasons. (a) The so-called progressivity of the tax system is nullified by the deductions available to the well-to-do which reduce the percentage they pay so that, as is well known, there is a vast disparity between the stated rates they are supposed to pay as compared with the actual rates they pay; where the salaried, lower income person's scheduled rate of tax and the actual rate of tax he pays are almost identical. In fact, the lowest income groups, while paying in dollar terms a low rate of tax, pay a rate of tax closest to the scheduled rate. When you earn an income under $3,000 any tax, no matter how small, is extremely burdensome or, for that matter, a man with a wife who does not work and has two children who earns less than $15,000 is extremely burdened by what taxes he does pay in relation to his expenses (see schedule on page 8). (b) The deductions that are available are not uniformly available to the rich and the poor. The poor do not own property, do not own stocks or bonds, do not have business expenses, deductions, etc. As a result of this the more well-to-do benefit very much more greatly by the system of deductions giving them a further rather than less advantage with respect to those earning less income.

II. DOES THE VERY PROGRESSIVENESS OF THE TAX SYSTEM GIVE MORE BENEFIT TO THE WEALTHY?

While much detailed study undoubtedly has been presented to the committee in the course of the hearings on this subject, one simple illustration I believe reveals some of the magnitude of the problem. Suppose two individuals, one with an income of $50,000 a year and the other with an income of $15,000 a year buy a house. The individual with a $50,000 a year income purchases a $50,000 house, putting 20% down on the total purchase price, thus leaving a mortgage to be paid of $40,000 at 7% interest. The individual with an income of $15,000 buys a $20,000 home and puts down 20%, thus leaving a mortgage of $16,000 at an interest rate of 7%. On the $40,000 at 7%, the interest to be paid out during the first year will be approximately $2,800 (amortization excluded); on the $16,000 mortgage the interest at 7% will be $1,120 (amortization excluded). Both home owners can deduct the interest they pay. However, the man who earns $50,000 can deduct at his rate of 55%, while his counterpart with less income, and more in need of a tax break, can deduct only at the rate of 25%, thus the so-called progressive system in this instance works against someone lower down the income scale. Persons higher up on the income scale deduct at their scheduled rates even though the rate they actually pay is considerably lower. The person earning $50,000 a year pays a scheduled rate of 55% while the actual tax rate such an individual usually pays is 38%. The person earning $15,000 pays a scheduled rate of 25% while his actual rate is about 20%.

On the $2.800 interest, the person who earns $50.000 obtains a tax benefit of $1,540 based on his 55% scheduled tax rate. Whereas the person earning

$15,000 a year who has paid $1,120 in interest obtains a tax benefit of $280.00 based on a 25% income tax schedule both relatively and absolutely lower than his counterpart who earns $50,000.

III. SHOULD THE RATE OF TAX BE CONSIDERED NOT ONLY IN TERMS OF WHAT IS PAID BY THE TAXPAYER, BUT THE BURDEN THAT THE PAYMENT THAT AMOUNT IMPOSES ON THE TAXPAYER?

Suppose a single man earns $5,000 and claims two exemptions. If he is single and not head of the household he pays $353 in taxes; if he is single and head of a household he pays $341 in taxes; if he is married and files a joint return he pays $326 a year in taxes. Upon a cursory glance, these sums seem small but looked at in terms of the burden that this amount imposes on him in relation to his expenses, and to the other deductions from his pay check (possibly union dues, city and/or state taxes, Social Security, health insurance, if he even has this) the sum is large. At that income level every hundred dollars of added or reduced income can make the difference between poverty or just low income living. Perhaps most illustrative of this point is rent. At this income level, the weekly earnings come out to about $95 a week before taxes. After taxes, the net disposable income available to this individual is approximately $70-$75 a week. Using the frequently used standard of the ratio of net disposable income to rent that the individual can afford as being one to four, an individual with this income could afford to pay between $70-$75 a month rent. The accommodations available to one at this monthly rental, to say the least, are unattractive. At this level, every ten dollars a month more available to the individual makes an enormous difference in the kind of accommodation he has. The married man earning $5,000 a year with two exemptions pays at present $326 a year in federal taxes. Prorated on a twelve month basis he pays $27 a month in federal taxes. This $27 a month, if added to his ability to pay rent, would permit him to pay about $100 rent, an amount which would provide the couple with very moderate housing, but the monthly addition of $27 could give the couple another room or better rooms in a better neighborhood. At this level, that $27 a month could make the difference between living in a slum or living in modest but livable quarters.

In sum, at this income level, every dollar makes the difference between living in dire poverty or moderate poverty. People living at this income level are concerned with basics, not luxuries. When a tax falls heavily on a person in this income bracket, while someone in the higher income tax bracket does not pay his full share, the result is that the low man suffers actual deprivation. The upper income man on the tax totem pole, if he pays $326 less in taxes, is now permitted to buy a nice color portable television set in addition to his living room set, while the person on the low end of the income level is, by having to pay even this $326, forced to live in a slum.

IV. SHOULD THE TAX BURDEN BE VIEWED NOT ONLY IN TERMS OF THE INCOME OF THE TAXPAYER, BUT ALSO IN TERMS OF DEFERRED INCOME, I.E., SOCIAL SECURITY, RETIREMENT PLAN, ETC., AS WELL AS OTHER TAXES THAT ARE DEDUCTED FROM THE INDIVIDUAL'S PAY CHECKS, SUCH AS STATE AND CITY PAYROLL TAXES ?

In this instance, I will use my own salary deductions on my bi-monthly pay check. My income is $11,500 for a ten month period. Every two weeks my gross pay is $444. Out of this $444, $72.34 is deducted for federal taxes; $25.97 for Social Security; $10.21 is deducted because I live in Philadelphia but work in New Jersey; as a member of the AAUP, I pay $7 a month (can be equated to union dues for a worker) for my annuity-a total of $22.20; $1.11 is deducted for New Jersey unemployment compensation, leaving me a net of $300.17. The total amount deducted is $143.83 from the gross of $444.00. The percentage deducted comes to approximately 32% which is approximately $3 out of every $10. In calculating the burden that a certain tax rate imposes on the individual one must take into account not only the dollar amount paid in federal taxes but this should be added on to other taxes paid by the individual. The scheduled rate that a person in my income tax bracket pays is 27%, but to this must be added the other taxes such a person must pay. Including these taxes the rate is now 32%.

It is true that the individual receives Social Security and retirement benefits at the age of sixty-five, but, for an individual needing to support himself or a wife and children during the prime of his life, this future income does not enable him to pay today's bills or feed today's baby.

It might also be added that while the Social Security system is progressive to a degree, it is progressive only to the extent that the lower middle income helps subsidize the very poor and the very rich, while the lower middle income person sustains the greatest burden.

Instead of ceasing to deduct Social Security after an income of $12,000 or more, the system should be reversed so that only persons above a certain income should pay for Social Security so that the already poor and the tax poor do not have their standard of living substantially affected during their life times so they do not have to be absolutely destitute after sixty-five.

V. CAN THE BUSINESS SECTOR BE GIVEN LESS TAX ADVANTAGES WITHOUT FUNDAMENTALLY DESTROYING ITS INVESTMENT POTENTIAL TO THE ECONOMY?

In law a distinction is often made between prohibiting a sphere of activity in society or regulating a sphere of activity in society. The investment incentives given to business should not be abolished, but should be reduced or regulated. For example, the oil depletion allowance could be reduced; municipal bonds, instead of being subject to no tax, should be subject to a small tax; and finally the laws that are in existence should be enforced more strictly. Respectfully submitted.

Source: Ferdinand Lundberg, "The Rich and the Super-Rich," New York, N.Y.: Bantam Books, p. 452.

57.5

Mrs. GRIFFITHS. Mr. Maurice Ward, president of the Joint Handicapped Council.

Mr. Ward, you may proceed. Will you please introduce your associates.

STATEMENTS OF MAURICE WARD, PRESIDENT, JOINT HANDICAPPED COUNCIL, AND BARNEY F. STANTON, JR., NATIONAL LEGISLATIVE CHAIRMAN, NATIONAL ASSOCIATION OF THE PHYSICALLY HANDICAPPED AND NATIONAL CONGRESS OF ORGANIZATIONS OF THE PHYSICALLY HANDICAPPED

Mr. WARD. My associate is Barney F. Stanton. He represents two national organizations. One of them is known as the NAPH, National Association of the Physically Handicapped, and the other known as the Congress of Organizations of the Physically Handicapped.

Mrs. GRIFFITHS. We are very happy to have you here.

Mr. WARD. My name is Maurice Ward. I am president of the Joint Handicapped Council, a nationwide action and service organization with headquarters at 720 West 181st Street, New York, N.Y., and representing a federation of handicapped and disabled veterans' organization with a membership of 40,000.

I am speaking in favor of H.R. 3150 (Mills), formerly known as H.R. 424. Precedent has already been set in granting the blind and aged an additional exemption.

In the committee hearings in 1954 where they were thinking of giving the blind and aged an additional exemption, the committee said the following:

Four. Just as the blind must incur special expenses due to their blindness the handicapped must incur special expenses due to their handicap. Some of the special expenditures of the handicapped that are cited are usually large expenditures for commuting to and from work, and for special mechanical equipment. In addition, the handicapped must usually incur heavy medical expenses. It is pointed out that both groups usually have low incomes.

In hearings held before your committee in 1958, a wheelchair bound lawyer testified in behalf of the handicapped on the need to enact such legislation as H.R. 3150, giving complete and detailed facts, figures, and other data to the committee.

In 1964 the full U.S. Senate passed an amendment to H.R. 8363 (Calendar No. 805) by Senator Sparkman, encompassing all features of H.R. 424 (now H.R. 3150 (Mills)), but it did not pass the conference committee. Again, in 1969 the full U.S. Senate passed a similar amendment to the General Tax Reform Act of 1969, encompassing word for word of H.R. 424 (Mills), the same as H.R. 3150 (Mills), but that, too, died in conference because of threat to veto the entire tax reform bill by President Nixon.

Thirteen members of the Ways and Means Committee in 1968 stated their agreement with the need to enact H.R. 424 (Mills), now H.R. 3150.

Disabled persons incur expenses far, far in excess of the nondisabled, some of which are:

Wear and tear on clothing, caused by friction of appliances, crutches, et cetera, requiring special, high cost of tailoring; also, extra trousers are required because of this friction; in many cases special made-to-order suits are a must, due to their misshapen bodies. Trousers cost as much as $40 and up and not extra-fancy types.

For persons in wheelchairs, a wheelchair costs a minimum of $400 to $600 and $1,000 or more if they want it motorized. For many in wheelchairs who get to and from work instead of staying on welfare where they ordinarily would stay if they didn't have the courage and wanted to work, it costs for special gadgets to lift them, called hydraulic lifts, from $150 to $200. Handicapped controls for the severely handicapped using his own car, cost from $100 to $150. Extraordinary tipping by handicapped, for servicing his car, because of his limited locomotion.

Extra expenses for recreation due to the fact they must sit in the orchestra, they cannot climb steps. Extra expenses for handicapped wives because they cannot perform simple chores and must hire help. Orthopedic shoes cost between $250 and $450 per pair. A full length orthopedic leg brace costs from $450 to $550. An artificial limb for an above-the-knee amputee costs from $500 to $600 and more.

The handicapped are forced to incur great expense for special transportation to and from work. The cost in the New York City area is as much as $65 to $85 and up per week by these severely hand

icapped as against only $4 to $5 per week by nondisabled using buses. and subways.

By the way, I come from New York. We have one of the best transportation systems in the world on the island of Manhattan which is part of New York City and only a mile and a half wide. There are five subway systems that can take you as much as 30 miles or more. for the fare of 35 cents. So that a nonhandicapped person can take advantage of it and get to work very cheaply, but the handicapped person going only as far as a mile to 5 miles to his place of work has to expend the amount I just mentioned.

A clerk earning $150 per week for example, pays the full tax on such earnings, whereas, in fact, his actual earning is only $90 a week because $60 of that amount has to be expended by the disabled taxpayer to get to and from work by special taxi cabs or other kinds of services. These are extraordinary expenses incurred to earn a living and pay taxes.

Surely the disabled individual who is willing to be both helped and to help himself should not be denied a deduction for his additional costs in relation to the nondisabled incurred in being gainfully employed and paying taxes.

A man has a right to work, to use his abilities and develop attitudes not only to his own gain, but for the benefit of the entire Nation. However, the disabled are not being utilized because they are discouraged in many cases from seeking employment due to lack of tax deductions for transportation. Businessmen and salesmen are allowed transportation deductions, but the handicapped are not allowed such deductions.

In order to produce an income and pay taxes into the Treasury, the handicapped must use special and expensive private transportation. A car with special hand controls or special taxi cab service at a very high cost is an ordinary and necessary expense for the production of income for these handicapped.

The Department of Transportation, in a book entitled "Transportation Needs of the Handicapped." page 23, survey by Arthur D. Little, Inc., stated (see Cong. Rec. Sept. 15, 1970, p. H8779):

*** the number of employable transportation handicapped persons was estimated to be 1,493,000. 103,000 were estimated to be transportation sensitive unemployed because of the high cost of transportation to work. If each of these were encouraged to work, incomes of $452,692,000 would be generated each year. Income taxes would increase by $39,697,000. Welfare payments would decline by $49,582,000.

By being part of the economy, the disabled aid the economy through working and paying taxes.

Two and a half million disabled who are employable but find difficulty in working because of the high cost of transportation would become productive and taxpayers through enactment of H.R. 3150. Our economy gains. The individual gains by becoming productive instead of a burden on the public assistance rolls.

The Government gains by collecting taxes from these disabled. If a man is not employed the Government does not collect taxes. It would collect taxes it would not have otherwise collected if these