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Is the Flat Tax a Good Idea?: No, for Fairness' Sake
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20339 |
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CURRENT ISSUES
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| Issue
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6 / 1992 |
2,259 Words |
| Author
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Douglas P. Kelly
Douglas P. Kelly is director of tax analysis at Citizens for
Tax Justice in Washington, D.C. |
Democratic presidential candidate Jerry Brown claims he has a "silver bullet" tax plan that would jump start the economy, send the stock market through the roof, and create millions of jobs, while putting thousands of lawyers, accountants, and IRS agents on the unemployment rolls. Best of all, he says, it would remove the high-priced, Gucci-wearing loophole lobbyists from the corridors of the U.S.Capitol.
Sound too good to be true? It should, because Brown's flat-tax plan would be a silver bullet through the heart of tax fairness. Despite Brown's rhetoric, his plan would be the greatest boost for the rich and powerful since Andrew Mellon was Calvin Coolidge's treasury secretary in the 1920s.
The former California governor would repeal the progressive income tax, the corporate income tax the Social Security tax, and the gasoline tax, replacing them with a flat-rate gross income tax (with deductions only for mortgage interest, rent, and gifts to charity) and a national sales tax, each at a 13 percent rate.
Brown's plan might sound simple on the surface, but is anything but simple. In fact, it's complex, it's unfair, and it offers the very wealthy some golden opportunities for tax avoidance. Instead of shrinking the IRS, the Brown plan would necessitate the creation of another huge tax enforcement division.
Read literally, Brown's plan would increase the federal budget deficit by $200 billion or so a year. It also would raise taxes on most families, while cutting them in half for the richest 1 percent.
If Brown's income and sales tax rates were adjusted--up to at least 16 percent--to avoid big deficit increases, then four out of five American families would pay higher taxes. Indeed, fully funded, Brown's plan would boost taxes on the typical middle-income family by $1,900 a year--a 31 percent jump--and triple taxes on poor families.
But what about the rich and powerful? Will Brown sock it to them, too? Absolutely not. According to the Congressional Budget Office, the richest 1 percent of the population currently pays about 29 percent of its income in total federal taxes. That may be too low, but Brown's plan, even at the 16 percent rate needed to avoid deficit increases, would lower the effective tax rate on the very rich to only 17 percent. That is an annual tax cut of $66,000 apiece for families making more than $500,000 a
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