How Brown's Flat Tax Favors the Rich

TRB

March 26, 1992|By TRB

WASHINGTON. — Jerry Brown's campaign technique is to grab onto some issue he's shown no previous sign of caring about, and then to NTC condemn with self-righteous wrath everyone else who fails to join him immediately in his new-found faith. In Mr. Brown's way of thinking, you are hopelessly corrupt if you still think as he thought until the day before yesterday.

In his long public career, Jerry Brown never expressed any interest in election-finance reform or tax simplification until now. These are both worthy causes, but they are poisoned by Mr. Brown's transparent opportunism. In the case of his so-called ''flat tax,'' Mr. Brown either doesn't understand his own proposal or is lying about it or, most probably, both. That swoony editorial note in the New York Times the other day, calling Mr. Brown's tax idea ''dazzling'' and ''simply brilliant,'' must be based on misunderstanding, since the New York Times doesn't lie.

Mr. Brown says he would like to eliminate the federal income tax, the social security payroll tax, and the federal gasoline tax, replacing all of them with a flat 13 percent tax on personal income and a ''similar value-added levy on business.'' The only deductions would be for mortgage interest, rent and charitable contributions.

It sounds great. Who wouldn't like to pay just 13 percent? The basic principle shares the spirit of the 1986 tax reform: eliminate the loopholes and lower the rates. George Bush and Bill Clinton are both marching backward from the 1986 reform with proposals for special tax breaks for this and that.

But what about the math? The federal government currently absorbs 22 or 24 percent of GDP. Federal tax revenues have been running about 19 percent of GDP. How could a 13 percent tax -- even if it covered every form of economic activity in the country -- possibly produce enough revenue to finance the government? Answer: it couldn't.

Mr. Brown claims his scheme would bring in just as much cash as the current system -- not even counting the explosion of productivity it supposedly would set off. Robert McIntyre of Citizens for Tax Justice calculates that Mr. Brown would come up short by $200 billion a year (on top of today's $400 billion deficit). But let Mr. Brown have his way on this one. If he's bringing in as much money as the current system, someone is paying a lot more than 13 percent. Who?

Mr. Brown is all over the lot on who pays more under his system. ''Our proposed flat tax . . . reduces the amount of taxes collected from individuals by about 45 percent and puts the obligation back on business.'' So businesses pay more? Oh no. ''Today . . . companies . . . pay a corporate tax of 35 percent. We eliminate that tax and we put a straight 13 percent tax on all businesses. . . . Japanese companies . . . are paying half what their counterparts in this country are paying.'' Overall, Mr. Brown claims, ''Those earning less than $100,000 annually will pay less in taxes. Those people who make more than $100,000 will pay proportionally more.''

That is flat wrong. The kicker is that ''value-added levy'' on businesses. A value-added tax, or VAT, is a sales tax. It gets added to the prices of products and services. Those prices wouldn't jump by a full 13 percent, since Mr. Brown would repeal the corporate income tax, which also is partially reflected in prices. But the effect of shifting almost half the tax burden to a VAT is highly regressive. Middle-class people who must spend most of what they earn would pay twice: once through their own individual tax and again through the VAT. Low-income people now exempt from taxes would also be paying both a 13 percent income tax and a VAT on every penny they spend. The poorest of the poor, with no income, would still pay the VAT. Only those able to live on a small fraction of their income would pay an effective rate close to 13 percent. In essence, the richer you were, the less of your income would be taxed. Some flat tax.

Mr. Brown got his ''flat'' tax plan from two researchers at the right-wing Hoover Institution named Robert Hall and Alvin Rabushka, who have been pushing it since 1980. They make no bones about the fact that their scheme amounts to a consumption tax: ''People are taxed on what they take out of the economy, not on what they put in.''

By the way they treat business investment, both schemes essentially exempt the return to capital from taxation. Messrs. Hall and Rabushka are perfectly honest about this: Their intention is to promote saving and investment. That is well and good. But the effect is to leave the entire burden of financing the government on wages. Mr. Brown is not honest about this effect. And it certainly makes an odd platform for the candidate who postures as the tribune of the working stiff.

Mr. Brown asserts that his tax plan would transform the ''dark nature of American tax reality'' in which ''only the rich hire lobbyists . . . to insure that the system favors themselves at the expense of everyone else.'' That's not a bad description of the present tax-writing process. But if adoption of Mr. Brown's so-called flat tax led rich folks to call off their lobbyists once and for all, it would only be because, from their point of view, he had made the tax code perfection itself.

TRB is a column of the New Republic, written by Michael Kinsley.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.