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Return of the Flatheads Republican Flat-Taxers Need a Visit to the Woodshed BY JAMES McCARTY YEAGER MARK TWAIN HAD ALREADY figured out the flat-tax fever more than one hundred years ago. In The Adventures of Huckleberry Finn, he described the proprietors of riverside woodyards, who sold cut firewood in stacks, using measures that included the air spaces between the logs. The cordwood, wrote Twain, would be “piled by them cheats so’ s you could throw a dog through it anywheres.” In our immediate era, the flat-tax proposals of Representative Dick Armey of Mastiffland, Senator Phil Gramm of Nowheresville, and Republican presidential hopeful Steve Forbes of Inheritanceburg, are arranged with similar deceptive intentalthough with considerably less likelihood of success. In Twain’s time, the woodyard cheats were bound to prosper, because the passing steamboats, in order to keep rolling down the river, had no choice but to stop and buy the wood. But despite what the Dallas Morning News calls its central role in the Republican presidential nomination fight, the flat tax is not inevitable. The dismal regressivity of the flat tax can be avoidedif, among other necessary events, liberal populists will point out its hideous consequences and support instead the beneficial effects of the progressive income tax. As even viciously centrist stock market trader, Allan Sloan, has pointed out in Newsweek, the flat tax is great for everybodyexcept, that is, for the middle class, the working poor, and the underclass. Guess who that leaves? Nobody that Armey, Gramm, or Forbes will admit wanting to help. Oh, in a gust of bravado one or the other might proclaim to “…sweep…away the estate tax, the capital gains tax, and the tax on interest and dividends.” But in general, the pretense of treating work-derived income equally with inherited wealth is less than thin. As Bob McIntyre of Citizens for Tax Justice notes, the flat tax is a deliberate return to the discredited trickle-down, supply-side, voodoo economics of the 1981 Reagan tax James McCarty Yeager is a writer and exHoustonian, now based in Maryland, who admits he stole the term “flathead” from Mark Twain. cut, which even Reagan himself came to repudiate. The theory that taxing the rich less and everybody else more will result in greater economic growth, is one pillar supporting the flat tax. Another is that “tax fairness” means taxing income and expenditures at a uniform rate. But upon closer inspection, both pillars are seen to be thoroughly cracked. Take Armey’s argument that “the flat tax is fair because it is true to the uniquely American definition of fairness: everyone should be .treated the same.” In Armey’s terms, those evil American socialists of the Democratic Congress of 1913, who passed the progressive income tax, were obviously mistaken in thinking that since the rich derive the most benefits from American society, they should therefore pay the most for them. They’d been reading too much Jefferson, or something. No, Armey has stumbled on a definition of fairness that is not American at all. In fact, it was anticipated in Second Empire France by Victor Hugo, who drolly observed that “a duke has the same right to sleep under a bridge as does a hobo.” Unsurprisingly, the number of European dukes exercising that right is exactly equal to the number of American millionaires who would, under a flat tax, find their tax bills at the same or a higher level. Armey goes on to argue that “by eliminating the bias against saving, slashing marginal tax rates, and allowing resources to seek their most efficient use, the bill will spur productive investment and economic growth.” This is trickle-down economics so pure and uncut by common sense that it would kill the body p9litic outright. The already vast inequalities of wealth in American society would be exacerbated to the breaking point, by having tax policy become even more favorable than it is now toward those who cannot even spend what they have, because they have so much. WHAT THE COMBINED chorus of flatheads won’t tell you is that, by taxing your wages at Armey’s seventeen percent \(or Gramm’ s sixteen percent or, to be revenue-neutral, your effective tax rate would become thirty-three to thirty-eight percent. That effective rate results because, under the various flat-tax proposals, your social security and medicare taxes would no longer be deductible, nor would your state or local taxes. There is some argument over whether the flat tax should or should not make home mortgage interest deductibleespecially since, if it is not deductible, house values across the country will likely plunge immediately by fifteen percent. As a house represents virtually all the real wealth possessed by five-sixths of American families, this aspect of the flat-tax proposals is going to go over real big. \(Gramm had sense enough to see the political lunacy of this proposition, and recently went running to the home-builders’ convention in Houston, assuring them that his plan would not eliminate this longstanding federal subsidy to In its current form, the flat tax was first floated in the 1980s by Robert Hall and Alvin Rabushka of the Hoover Institute. In Senate hearings at the time, Hall admitted that “we are careful not to call it a consumption tax,” although he did not state the obvious reason for the oversight, which is: a consumption tax most heavily burdens those who spend most or all of their incomes “consuming” pesky little necessities like food, shelter, medical care, education, and transportation. So such a tax isby natureregressive. Efforts by Armey and Gramm and Forbes to make the new flat tax a “progressive” consumption tax, by installing large deductions for individuals and families, merely drive the price of the tax so high that they can’t talk about it any more. Treasury figures demonstrate that a flat tax, along the lines proposed by the neo-flatheads, would collect on the order of two hundred billion dollars a year less than the current system. In response, the flat-taxers blithely promise to make that up in spending cutsneglecting to mention that elimination of two hundred billion dollars a year should just about decimate every government function, except defense, social security, Medicare and Medicaidand even these would have to be trimmed. But the central essence of the flat tax is that it does not tax capital investment and savingsowned primarily by those who have too much money to be able to spend it allwhile greatly increasing the tax burden on ordinary wage earners. As Citizens for Tax Justice’s McIntyre says, “a tax system 10 FEBRUARY 9, 1996