Sunday, October 26, 1997

Would a flat tax really be so popular?

By WILLIAM A. RUSHER

Newspaper Enterprise Assn.

Forgive me for being the skunk at the garden party, but I think we conservatives had better think long and hard before we bet our chips on a flat tax.

Don't get me wrong: Personally I am all in favor of the idea, and I think Steve Forbes deserves the thanks of all thoughtful Americans for proposing it, and pushing it, and thereby forcing everyone to think seriously about tax policy.

But it is by no means clear that a majority of the American people, however much they detest the current tax system, would really be ready to replace it with a flat tax once they fully understood the latter's implications. And I am afraid the Democrats may just be lying low, and pinching themselves to make sure they can really believe their luck when they see this proposal coming their way as the battle-flag of the Republican Party.

What, precisely, is the flat-tax proposal? It would wholly eliminate the current system of "progressive" taxation, under which the percentage of income taken in taxes increases in proportion to the amount of income subject to tax: 15 percent for the lowest bracket, and on up to nearly 40 percent for incomes of more than $270,000. In addition there are all sorts of deductions for home mortgages, charitable contributions, and the like, most of which would be eliminated too.

Under a flat tax, all taxpayers (the very poorest would be exempted entirely) would pay the same rate -- 17 percent is often suggested. And that would be it -- no deductions at all (though one school of thought would save the home-mortgage deduction).

Don't make the Sam Donaldson Error, named for the noted newsman who revealed on a talk show he thought that under a flat tax, everybody would pay the same amount. But everybody would pay, in taxes, the same percentage of his or her income. Thus, if the flat tax was 17 percent, a person making $30,000 would pay $5,100, while a person making $200,000 would pay $34,000.

That sounds reasonable enough at first (and, many believe, long thereafter as well). But wait until the Democrats get hold of it and start running TV ads comparing those figures to the amounts paid under the present system. Low-income taxpayers would almost inevitably pay more than they do today (in our example, $600 more), while high earners would pay vastly less: The tax on a $270,000 income would drop from $108,000 under the present system to just $45,900.

Can you imagine what the class warriors at the Democratic National Committee and in Richard Gephardt's House Democratic caucus would do with such figures? The flat tax would be portrayed as the Rich Man's Tax Bill to end all Rich Man's Tax Bills. There would be colorful charts and graphs, depicting how much less the wealthy would contribute to the national kitty under a flat tax.

Besides, Democrats would argue, the person earning $200,000 simply doesn't need 83 percent of it as desperately as someone earning $30,000 needs 83 percent of his or her much-lower income.

Patiently, the Republicans would try to explain that the economic stimulus generated by a flat tax would more than compensate the low-income taxpayer for the modest hike in his tax rate. But that would be dismissed as pie in the sky, while the indisputably large benefit to big earners would be highlighted as an outrageous windfall.

In short, it is very doubtful that most voters are ready to scrap progressive taxation altogether, even though they would probably be shocked to learn that today the top 10 percent of income earners pay nearly 60 percent of all income taxes, and the bottom half only 5 percent. The "politics of envy" is alive and well, and living in Washington.

William A. Rusher is a Distinguished Fellow of the Claremont Institute for the Study of Statesmanship and Political Philosophy.