Taxmen Give and Take

The U.S. income tax system last week entered the era of indexing. The Treasury Department announced that in view of inflation during the past twelve months, deductions, exemptions and tax brackets will be adjusted upward by 4.1% next year. Tax indexing was part of the Reagan Administration's 1981 tax-reduction act. Similar inflation adjustments will now be made annually. The following changes await taxpayers in 1985:

> The $1,000-per-person exemption will be increased to $1,040.

> The same proportional increase will apply to standard deductions. Those for single taxpayers will rise from $2,300 to $2,390. For joint returns, the deduction will go from $3,400 to $3,540.

> The 4.1% tax bracket expansion will prevent taxpayers whose incomes have been raised to offset inflation from being bumped into a higher tax bracket. For example, a family with taxable income of $30,000 this year will be able to earn $30,450 next year without its tax bill of $4,818 increasing. Without the new indexation, so-called bracket creep would have raised that family's 1985 taxes to $4,944.

Next year's changes will benefit some taxpayers more than others. Single taxpayers with adjusted gross incomes of $20,000 will pay $47 less in taxes. Married couples with two dependents filing a joint return and showing $40,000 in adjusted gross income will get a $129 break. If they earn $50,000, they will pay $224 less.

Democrats at first attacked indexing, saying it was the job of Congress to cut taxes. Since enactment of the tax bill, however, their opposition has waned. Walter Mondale has said that he is "committed to the principle" but has urged deferment of full indexation for wealthier taxpayers until the budget deficit is reduced. Republican Senator Robert Dole, chairman of the Finance Committee and a sponsor of tax indexing, hailed the elimination of bracket creep as a "day of triumph for all working Americans."

Alas, Uncle Sam next year will be sticking to his habit of giving with one hand but taking with the other. Social Security contributions, as those taxes are euphemistically called, will go up in 1985 under separate legislation passed in 1983. The maximum Social Security bite from paychecks will be increased $259.20, to $2,791.80. For most Americans that will more than wipe out any gain from income tax indexing.