Deflating the Flat Tax

Wild and Crazy Tax Plan. No one outside Washington could have devised something more complex, more corrupting, more un-understandable, more antigrowth, more antifamily, a dead weight on life in America, than the tax code today, insists this week's hot political commodity, publisher/heir/presidential candidate Malcolm Stevenson "Steve" Forbes Jr. "There is only one thing to do. That is to scrap the system, drive a stake through the heart, kill it, bury it, hope it never rises again." "Blow it up and start over," concurs talk-show host/heir/ex-governor Edmund G. "Jerry" Brown Jr. (accurately paraphrased by Lester Thurow). The progressive tax, says the self-styled left-wing populist, is nothing more than a "cover story for the preservation and even enhancement of the growing inequality." The report of Jack Kemp's tax commission, appointed for the Republicans by Newt Gingrich and Bob Dole and scheduled for delivery January 9, will sketch the outlines of a "flatter or fairer tax system," in the words of its chairman. Kemp hopes the plan will become the "centerpiece of the Republican Party's 1996 campaign." House majority leader Dick Armey (together with Democrat-turned-Republican Senator Richard Shelby) is sponsoring a uniform tax rate of 20 percent for families of four on every dollar above the first $36,000 for three years, going down to 17 percent in the fourth year. The Forbes plan is nearly identical, but begins with the 17 percent rate. Robert McIntyre of Citizens for Tax Justice estimates the cost of the Armey plan at $40 billion for its first three years, at which point it joins the Forbes plan in costing the Treasury $150 billion annually. To pick on the current tax code is to shoot arthritic fish in a barrel. The code is six and a half times longer than the King James Bible. It imposes a cost of 24 cents in compliance for every dollar it raises. Its complexity provides a wealth of opportunities for lobbyists to carve out sweetheart deals for corporate chieftains, simultaneously impoverishing the rest of us and making a mockery of our claims to equality of democratic representation. U.S. taxpayers pay four dollars for every dollar of extra income produced by the ethanol industry largely because Archer-Daniels-Midland head Dwayne Andreas has been so effective in buying his company our subsidies through the tax code. According to the Forbes campaign, for instance, ethanol champion Bob Dole has taken 170 trips on the A.D.M. corporate jet. Such corruption is endemic in both parties given the current rules. Jude Wanniski, the self-designated wild man of supply-side economics and sometime guru to Forbes, touts a flat tax as a means of "getting rid of the corporate socialism in the system." Speaking for "unborn business" and citing Karl Marx -- apparently the Republican patron saint this year -- Wanniski explains that "men of wealth have always used their power to keep taxes high to strangle new growth." Wanniski and Forbes argue that the institution of a flat tax would eliminate "the principal source of political corruption and pollution in Washington ... [in] one fell swoop." Moreover, Forbes explains, it would "trigger the greatest boom in American history. People could keep more of what they earn and job-creating investment would be encouraged." The wild man and the publishing scion are original supply-siders and, one assumes, true believers (though cyberpundit Michael Kinsley notes that "today's tax rates have not deprived Mr. Forbes of the initiative and entrepreneurial zeal it took to inherit a publishing empire"). William F. Buckley Jr., who recently sponsored a spirited Firing Line argument on the issue, sees it primarily as a moral and philosophical one. The progressive income tax, says the Connecticut squire, is unconstitutional under the Fourteenth Amendment, which affirms that no one "within the jurisdiction of the United States will be denied equal treatment under the law." Buckley, Forbes, Wanniski and Brown could be right. The current tax code may be unconstitutional. It may be corrupt. It may strangle growth. It may be unfair to the poorest Americans. It may even cause cancer. But it is not going anywhere. We will have a flat tax when Christopher Hitchens lies down with Midge Decter. Think about it: Is Congress really ready to take on the Catholic Church over deductibility? What about homeowners? Do the leaders of the Republican House and Senate look like they are ready to pick a fight with the entire real estate and medical industries over their deductions? What about the restaurant and liquor industries? Wanniski insists that all charitable deductions should be eliminated because they constitute "social engineering, which is inappropriate in this philosophy to taxation"; admirable honesty, but political suicide. Supply-side theological speculation aside, even the academic originators of the idea in its current incarnation, Robert Hall and Alvin Rabushka of Stanford University, admit that lower taxes on the rich will have to be made up with higher taxes on the upper middle class -- people making $80,000 to $200,000 a year. Is that who politicians are likely to go after in the next round of tax hikes? So what's really going on here? In the first place, the flat tax proposals are a hoax. While purporting to tax the owners of this publication, for example, at the same rate they would its impoverished contributors, the flat tax proposals would exempt all capital gains and interest income. What would you do if you owned, say, Forbes? Tell you what I'd do. I'd work for no salary but have my board vote me lots of stock options and bond income. So would every C.E.O. in America. Buckley estimates that Bill Gates would pay, when "last noticed, $212 million under a flat tax." Right. By taking all his earnings as stock options, Bill would have a lower tax bill than his brother, Henry Louis. The tax code's invidious complexity is irrelevant to its progressivity. For most Americans, Thurow notes, "we already have a very simple tax code. You fill out a 1040 short form, three quarters of a page, you write down your income, you multiply by the tax percentage and your form is done. It takes less than ten minutes." The reason tax lawyers are in our money derives from the discomfort the rich and well-to-do experience when forced to calculate their various sources of taxable and nontaxable income and the complicated shenanigans they invoke to turn the former into the latter. America already has perhaps the least progressive income tax structure in the Western world, save perhaps Turkey, for which the word "Western" is a stretch. Republicans, fortified by the economic projections of the conservative Center for Policy Analysis, the Cato Institute, the Heritage Foundation and Grover Norquist's National Taxpayers Union, are now planning an assault on the last -- the only -- progressive aspect of the entire system. For progressives like Brown to join in this jihad in the hopes of constructing something fairer and less corrupt is naive in the extreme -- a genuine example of the "infantile left-wing disorder" that Comrade Lenin professed to detect in his anarchist critics. Just who do they think is going to write the next tax code -- Ralph Nader? Richard Gephardt has introduced a genuinely progressive tax reform that is superior to the flat tax in every way and really does go after corporate welfare (though one can't help but wonder where the hell this plan was when Gephardt and company were in the majority). Jack Kemp has already said that his commission will not recommend a completely flat income tax -- just a "flatter" one. In other words, keep the deductions and exchange lower taxes on the super-rich for slightly lower taxes on the super-poor (though Republicans have hardly shown enthusiasm for the earned-income tax credit, which does the bottom part of the job without screwing with the top). Wanniski says his "blood brother" Kemp cannot be expected to challenge the deductions that are built into the system in what is, after all, an obviously political exercise. Commission member and ex-governor/presidential candidate/ heir Pierre S. "Pete" DuPont IV says he hopes the new tax costs the government revenue. Remember David Stockman, Richard Darman and the Trojan Horse tax cut of 1981? Take a guess whose interests are going to be flattened this time around.

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