Flat-tax mania enlivens the GOP campaign

January 22, 1996|By Jack W. Germond and Jules Witcover

DES MOINES, Iowa -- When Republican presidential candidate Steve Forbes faced the other eight GOP contenders in debate here a week ago, he was bombarded with criticism about his proposal for a flat 17 percent tax on all earned income for everybody, with no deductions. But in the process he has elevated the issue to center stage, with other candidates now offering variations on Mr. Forbes' johnny-one-note theme.

Sen. Phil Gramm formally proposed a flat tax of his own at 16 percent the other day, and news commentator Pat Buchanan has his version. Both men would continue the current deductions for home-mortgage interest and for charitable contributions, as essential to encouraging home ownership and shifting more of FTC the welfare burden to the private sector.

At the same time, a Republican tax-reform commission chaired by President Bush's former housing secretary, Jack Kemp, the longtime champion of supply-side economics, has just recommended a single-rate tax without saying what the rate should be, and retaining most standard deductions.

The focus on a flat tax has brought Mr. Forbes a wealth of publicity that for once he hasn't had to pay for. But the jury is out about whether it's the kind he wants in the long run, because he has become the target of the other GOP hopefuls, and Democrats as well, who scoff that Mr. Forbes' proposal would be a bonanza for millionaires like himself.

In the Iowa debate Mr. Forbes acknowledged that his proposal would mean a reduction of from $100,000 to $200,000 a year in his own taxes, because interest, dividends and capital gains would be untaxed. Only earned income -- salaries -- would be subject to the 17 percent levy.

The plan does specify that an individual making less than $13,000, a couple making less than $26,000 and a family of four making less than $36,000 would pay no tax. But many low-income families now pay no income tax and receive an income supplement.

In the Iowa debate, former Tennessee Gov. Lamar Alexander labeled Mr. Forbes' proposal ''a truly nutty idea in the Jerry Brown tradition'' -- a reference to the former California governor's espousal of a flat tax in the 1992 Democratic presidential nomination campaign. Mr. Brown spent much of that campaign defending the idea and never was a serious threat for the nomination. Mr. Forbes could find himself in the same boat, despite running second now to Sen. Bob Dole in polls in Iowa and New Hampshire, site of the first presidential primary.

'Lounge lizards'

Mr. Buchanan, who is waging a populist campaign and casting himself as the defender of the working man and woman against corporate greed, has warned that the Forbes plan would raise the federal deficit by billions while benefiting his fellow rich. Leaving interest, dividends and capital gains untaxed, Mr. Buchanan wrote, means that ''lounge lizards in Palm Beach [would] pay a lower tax rate than steel workers in Youngstown,''

At the core of all of the flat-tax schemes is the notion that they will spur savings, investment and economic growth, thereby generating more prosperity and tax revenue, a theory of tax-rate reduction that goes back to the Ronald Reagan presidency -- and the huge federal deficits incurred during it. Mr. Reagan, however, pushed for and achieved drastic cuts in the tax rates, not a single rate for all taxpayers.

Aides to Senator Gramm have acknowledged that his plan, retaining deductions for home-mortgage interest and charitable contributions, could produce a revenue loss to the government of up to $45 billion, but they say the loss would be made up through deeper spending cuts. The dropping of those popular deductions may be the political Achilles heel of the Forbes plan. Mr. Forbes observed in New Hampshire the other day that ''I'm putting my political life on the line'' by proposing to eliminate them.

Except for Mr. Forbes' attacks on Senators Dole and Gramm as ''Washington politicians,'' he has run almost exclusively on the issue of the flat tax, spending heavily on television ads touting it in Iowa and New Hampshire.

As a wealthy man dipping into his fortune to gain prominence, however, he runs a major risk in espousing a plan so vulnerable to charges of self-interest. Mr. Forbes has bought his time in the sun, but his resultant high standing in the polls is bringing him plenty of criticism as well that he may not be able to withstand as the campaign unfolds.

Jack W. Germond and Jules Witcover report from The Sun's Washington bureau.

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