Radio Address to the Nation on the Economic Recovery Program and on Tax Reductions

My fellow Americans:

As a boy growing up in Illinois, swimming was an important part of my life. Pools weren't very common or affordable in those days, so my swimming was done in the Rock River.

I soon learned that swimming with the current downstream was a lot easier than swimming upstream. Nevertheless, today I'm going to swim against the current. The current I'm talking about is a riptide of criticism that claims this administration's economic policies impoverish the poor and bestow benefits on the rich. This distorted view was created by special interest demagoguery and political-year oratory, dutifully reported by a goodly portion of the press.

A week or so ago there was a report, complete with impressive figures, showing that our economic policy has punished people at the poverty level. The report was accurate that in 1978 an income of 6,662 was the poverty level. It is also accurate that inflation has now pushed the poverty level up to $10,180. In other words, it takes that much to buy what 6,662 would buy in 1978. Critics have concluded on the basis of this report that because of our economic program, those at that level were much poorer than they had been in 1978. Well, they're right that those at the poverty level have not kept up, but wrong as to what is to blame. It certainly isn't our tax cut, which is helping low-income earners keep more of their hard-earned dollars.

Part of it was caused by the biggest single tax increase in history, which had been passed back in 1977, calling for several successive increases in the social security payroll tax to take place between 1977 and 1990. During that same period, by the way, there will be increases in the amount of earnings subject to the tax up to more than 52,800.

But this is only part of the reason those people at the poverty level are having trouble keeping up, and it hasn't anything to do with our across-the-board, 25-percent cut in the income tax. The simple truth is the income tax does not take into account the value of your dollars. It's based on the number of dollars you earn. So, even though $10,180 is only worth as much in purchasing power as 6,662 was a few years ago, you have to pay income tax on those 3,500 additional dollars just as if you gained that much in purchasing power.

Now, let's take a look at that other drumbeat that our tax cut is designed to help the rich get richer and either does nothing for the low- or middle-income earners or, even worse, adds to their burden, and how they arrive at that conclusion. Well, it's true that if your tax burden is $100, your tax cut is only $25. But if your tax is $1,000, your saving is $250, 10 times as much. But the ratio stays the same. If your tax burden was 10 times as much before, you're still paying ten times as much tax.

There's a better test of whether one group benefits more than another: Did the tax cut increase or decrease the share of the total tax paid by the earners at various levels? In 1982, the last year for which we have complete figures, all those with incomes below $20,000 a year paid a 10-percent smaller share of total income tax revenue than they did in 1981. From $20,000 to $50,000, the share only dropped by 1 percent. From $50,000 and up, the share of total tax increased by 7 percent. And if you break that group down to those earning $500,000 and up, their share of the total income tax burden increased by 43 percent.

This, then, is the best kept secret about our tax cut. The wealthiest Americans are carrying a higher share of the total tax burden after our tax cut than they were before.

Next year, another part of our tax program will go into effect. It's called indexing and will begin on January 1st. Very simply, it means you will no longer pay an income tax on inflation, which you've done every time a raise or cost-of-living increase pushed you into a higher tax bracket. The greatest beneficiaries of indexing will be those in the lower and middle-income tax brackets. It will do little for the so-called rich, because they're already in top tax brackets.

Many of those who were the loudest in declaring our tax program unfair want to cancel indexing before it goes into effect. Canceling indexing would increase the tax burden for lower and middle-income earners by three times as large a percentage as it would for the rich.

And one last point—perhaps the most important. Our program is stimulating strong economic growth, creating more jobs and opportunity than ever before.

Well, so much for swimming upstream. Until next week, thanks for listening. God bless you.