Jerry Brown thinks U.S. should be first major nation to have a flat-tax system

March 08, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- The so-called "outsider" and "insurgent" presidential campaign of Edmund G. "Jerry" Brown Jr. has novelty appeal beyond its surprise success,shoestring style and colorful candidate. Take the idea of a flat income tax.

No major industrial nation has a flat-tax system. Mr. Brown, alone among this year's presidential candidates, thinks the United States should be the first.

"The other candidates are just nibbling around the edges of the problem. Brown is getting to the heart of it," said Jude Wanniski, a supply-side economist who advocated the flat tax to Mr. Brown.

He added: "I never thought he would be so bold as to go the whole way. It probably strikes many people as a moonbeam idea, but . . . it's the ideal tax system to have."

The former two-term governor of California, who initially opposed and then supported the property tax revolution that spread across the nation from his home state in the late 1970s, now is out to redraft -- and virtually eliminate -- the federal tax code.

In the sort of departure from orthodoxy that long ago established him as a political maverick, the lifelong Democrat and social liberal has enthusiastically embraced a conservative Republican

approach to taxes.

He calls it "a silver bullet solution for the economy."

"With one stroke, the major source of venality and graft will be eliminated and the Byzantine strictures of the Internal Revenue Code made so simple that even a sixth-grader will understand them," Mr. Brown said in introducing his flat-tax proposal. The idea is a central plank in the platform that has kept him politically alive against all the odds and that contributed to his outright victory in Colorado's Democratic primary last week.

For most of the 20th century, income taxes have been graduated on ability to pay. But on the eve of the 21st century, Mr. Brown thinks tax brackets have outlived their usefulness. He would impose a flat 13 percent levy on individuals and a 13 percent value-added tax on corporations. The rich and the poor, the large conglomerate and the small company, all would pay the same proportion of taxable income.

All other current federal taxes -- such as Social Security, gasoline, corporate, and capital gains -- would be scrapped, along with most deductions and credits. Total government revenues would remain the same, based on Mr. Brown's calculations, because the tax base would be broadened.

According to the Tax Foundation, the median double-earner family with two children currently pays an average 30.2 percent, or $16,608, in federal taxes on an income of $54,926. The flat 13 percent advocated by Mr. Brown would be no more than $7,140.

Corporations currently pay an average 26 percent of profits in tax, twice the rate of Mr. Brown's proposed 13 percent of value-added. But because most corporate deductions would be eliminated, the actual levy under the Brown plan likely would be increased. Any increase inevitably would be passed on to

workers through lower wages, consumers through higher prices, stockholders through lower dividends.

"The bottom line is corporate taxes are paid by individuals anyway," said Paul Mercki, fiscal director of the Tax Foundation.

In a Brown administration, tax forms would shrink to postcard size. Millions of the hours and dollars currently spent on tax compliance and avoidance would be saved, and the federal cost of enforcement reduced. An army of tax lawyers and fTC accountants could be given their marching orders.

Not for the first time, Mr. Brown has turned his back on an entrenched Democratic principle -- use of the tax system to redistribute wealth. Even as Democratic members of Congress work on increasing taxes on the wealthy to pay for decreasing them on the low- and middle-income, this most unpredictable of politicians has deserted his party's traditional progressive approach. An advocate of fairness in most matters, he has chosen what is widely perceived as perhaps the least fair of taxes.

Mr. Brown, who sought wisdom during a period of self-discovery in India in the 1980s, also has chosen to ignore the tax musings of one of that subcontinent's sages, Manu, 3,000 years ago. According to the Encyclopedia Britannica, the sage gave this early critique of flat taxes: "To make the burden of taxes equal . . . is not affected by a mere numerical proportion.

"The man who is taxed to the amount one-tenth . . . of an income of 100 rupees per annum is taxed far more severely than the man who is taxed an equal proportion of an income of 1,000 rupees, and to a prodigious bigness more severely than the man who is taxed an equal proportion of 10,000 rupees per annum."

This ancient assessment is shared by many economists today. Ellen Nissenbaum of the Center on Budget and Policy Priorities, a liberal think tank focused on low-income housing, said: "They [flat taxes] are extremely regressive taxes and are going to hit low- and moderate-income taxpayers more than the upper income bracket.

"Nobody can tell you that it [a flat tax] doesn't have different effects on different kinds of taxpayers."

Jeff Faux, of the liberal Economic Policy Institute, said the United States already has the most unequal distribution of income and wealth of any major industrial nation, adding: "This would only aggravate it."

A flat-tax advocate, Norman Ture, president of the conservative Institute for Research on the Economics of Taxation, countered: "The regressivity argument is one I have very little sympathy for." He argued that graduated taxes penalize work, investment, savings and enterprise.

Mr. Wanniski, Mr. Brown's adviser and president of Polyconomics, an international financial consulting firm based in Morristown, N.J., said he told Mr. Brown that a presidential candidate this year should look for the fastest way to double the size of the economy without fueling inflation.

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