Jerry Brown's bogus flat tax

ROBERT KUTTNER

March 19, 1992|By Robert Kuttner

FORMER California Gov. Jerry Brown placed a surprisingly strong second in Michigan, by moving into the vacuum on the Democratic Party left. He played to the beleaguered United Auto Workers union, and embraced other populist outsiders such as Ralph Nader and Jesse Jackson. But his flat tax proposal is preposterous and cynical.

Take a close look at what Mr. Brown has called the "silver-bullet solution for the 1990s." That slogan alone should be a tip-off; there are no silver-bullet solutions.

Mr. Brown's preposterous claim is that a flat tax of 13 percent on all individuals and businesses would make the tax code simpler and fairer -- simpler because it would do away with most deductions, and fairer because it would replace the regressive payroll tax on wage earners.

Under Governor Brown's plan, the only allowable deductions would be charitable contributions and mortgage payments. His campaign literature claims, "The 13 percent flat tax reform is the only new idea to emerge from this year's presidential campaign. With it, the stock market will go through the roof, businesses will thrive and millions of Americans will go back to work. Of course, politicians, tax preparers, attorneys, accountants and IRS agents will fight to preserve their honey pot . . ."

To begin with, Mr. Brown's arithmetic is seriously wrong. Federal outlays currently total about 22 percent of gross national product. There is no way that 13 percent of personal and business income can add up to 22 percent of gross national product. Even with the kindest of interpretations, this flat tax would increase the deficit by at least $200 billion.

Second, since the current tax code, loopholes and all, is on balance mildly progressive, a flat tax would actually increase the tax load on the working middle class. Robert McIntyre, the indefatigable director of Citizens for Tax Justice, calculates that the Brown proposal would increase the taxes of four out of five American families, while the richest 1 percent of the population would have taxes cut almost in half. A middle-income family would get a 31 percent tax increase.

Third, the claims about tax simplification are grossly exaggerated. The tax code could certainly be simplified -- but it is complicated mainly because economic life is complicated. For example, if you earn $40,000 a year, but have $10,000 in emergency medical bills, present law allows some of that to be deducted from your taxable income, on the theory that your real, spendable income has been reduced by the doctor bills. Mr. Brown, in the name of simplification, would eliminate that and other beneficial deductions.

For businesses, the snake oil in the proposal is even more slippery. Firms incur genuine expenses in the course of doing business. For example, as a newspaper columnist and writer of books and magazine articles, I am basically a small business. My tax return, which is currently spread over my desk and floor, is an annual nightmare. I need to figure out which telephone calls, office supplies, road trips, magazine subscriptions, etc., etc., are legitimate costs of doing business. Nothing in Governor Brown's proposal would eliminate that task, for me or for any other business -- and that remains true whether his tax is flat or round.

Yet, Mr. Brown has not only gulled panicky liberals like the autoworkers. He's even hoodwinked the august New York Times. Last week, Michael Weinstein, the paper's editorial writer on economics, wrote a signed editorial breathlessly titled "The Beauty of the Flat Tax: Jerry Brown Seizes Something Wonderful." According to Mr. Weinstein, the flat tax proposal is "simply brilliant." It would throw out "a zillion pages of tax code . . . tax forms would be no bigger than a postcard."

This is absolutely delusional. For businesses and most individuals, the complex part of figuring out your taxes is determining what properly qualifies as net income, and what are bona fide expenses. As Mr. McIntyre, a longtime advocate of tax simplification, has observed, "Simply asserting that we will tax 'all' income does not solve any of these problems."

Moreover, to the extent that the tax code could and should be simplified, the rate structure has nothing whatever to do with its complexity. At present, thanks to 1986 tax reform legislation, nearly all taxpayers pay one of just three rates, depending on their income: 15 percent, 28 percent or 31 percent. In fact, about three-quarters of all taxpayers currently pay a flat rate of 15 percent.

Indeed, the multiplication of the taxable income times the rate is the simplest part of calculating your taxes. Whether the rate should be flat has nothing to do with whether the tax code should be otherwise simplified. It is merely Mr. Brown's attempt to couch an extremely conservative idea in populist rhetoric. The plan is a fraud.

A personal footnote: In 1979, I wrote a book about California's Proposition 13 -- the first in the wave of recent taxpayer revolts. To a large extent, it was the fault of one man -- then-Gov. Jerry Brown. California voters revolted mainly because Mr. Brown banked a huge state budget surplus that had been accidentally generated by escalating property values. The legislature wanted to refund the money to taxpayers; Brown, looking to make a national reputation as a fiscal conservative with a big budget surplus, dithered -- and the voters rebelled.

It is characteristic of the man and his opportunism that he now offers a bogus plan to champion the oppressed taxpayer.

Robert Kuttner writes a column on economic matters.

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