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Text File | 1992-08-28 | 5KB | 136 lines

                                                                                NATION, Page 17

How's That Again?


By Jerry Brown


    Jerry Brown's stream-of-consciousness style of politics
was on display last week as he tried to explain his tax-reform
proposals in a meeting with TIME's editors in New York:


    Q. Most economists say your plan for a 13% flat tax and a
13% value-added tax would result in higher tax bills for
middle-and lower-income people. Did you think the idea through
very thoroughly?

    A. I thought a lot about it, and what I thought was this:
that all these little tax proposals that I've watched are empty
and meaningless. They don't add up to anything. It's just a
game of churning the tax code, and I think it feeds the
corruption. And my spirit of reform fits into the idea of
simplifying the tax code and taking the politics out of it. And
I believe economists recognize the efficiency, the incentive for
saving and investment, that this tax proposal has.

    In terms of its effect on different income groups, the
present system is highly regressive. If you're making $45,000,
you are, in many cases, in a 43% marginal tax bracket. Because
you have 15.3% if you attribute the whole Social Security tax
to the employee, and you have your 28% [income tax]. And it's
a very regressive tax and admits of no deductions.

    By abolishing the Social Security tax and combining it
under one 13% [flat rate] and allowing for a deduction for
rent, charity or home mortgage, you're actually making it very
progressive. And I'll give you an example. If you're in the
lowest 20%, your income is $5,000, you pay 5.6%. If you're in
the top 20%, your income is $76,000, you pay 10.8%. It's because
the estimated value of your three deductions or your two
deductions diminishes as a proportion of your income as you go
up the income scale.

    And, in terms of the value-added tax, [economist Lester]
Thurow was talking about that, [economist Robert] Heilbroner's
talking about that. They do it in Europe. It is, I believe, when
you use it as replacement rather than add-on, it does not have
an increase price effect to the whole economy. But it is price
neutral, and it's a matter of what the market conditions are.
And I'm sure that if people can raise the price, they'll do so.
And since most shares of stock are owned by the wealthiest
people, when you put a 13% tax on business, as this is, I think
it will fall proportionally on those with higher incomes. And
I'm now working to try to get some numbers to demonstrate that.

    And in terms of alleviating [the burden on] the people
who have the least income, I think that should be done with
direct expenditures in a way that there are earned income tax
credits, and ways in which you allocate a specific targeted
amount to put a floor under people to alleviate poverty. I think
that's a much more effective way of doing it. Because every time
you start playing with the tax code, invariably it gets into
the hogs feeding and the auctioning off of loopholes. And I
think that's corrupting. I think it's economically distorting,
and I believe this would generate a lot of saving and
investment, push us ahead economically.

    And then, in terms of distribution, I believe if we
strengthen our labor laws, if we make it easier to spread out
employee stock options to get more ownership distributed, and
if we use a positive expenditure program, we can take care of
the requirements of social equity.


    Q. When you start with an earned income tax credit,
doesn't that open the way for yet other exceptions, and then you
no longer have a flat tax?

    A. Well, it's an expenditure. You know, in France they
give people child assistance. You can give people a government
check.


    Q. Is that what you're advocating?

    A. Yes. Hey, I'm the campaign of the people. Clinton is
the campaign of the fat cats.


    Q. What's the revenue assumption here?

    A. I think maybe it's less. You see, when you make the
transition, there's about $80 billion of depreciation that's out
there. So you have to account for that. And that's why [I set
the rate] at 13%. But this thing might be lower than 13%. The
idea is to collect the same amount of money as was collected
last year.


    Q. And, therefore, still have a $270 billion deficit?

    A. Well, if you want to deal with that, you can add a
point. You get $70 billion more every time you add one point.
I'm not for that because, first of all, I want to establish this
as an efficient form of taxation and do it in a revenue-neutral
way.


    Q. If it turned out that you needed to go to 16%, would
you favor that?

    A. The goal is to get revenue neutrality. I think it is
below 13%. I took 13% as [being] just on the high side.


    Q. You'd postpone dealing with the deficit for half a
decade?

    A. No. I don't like to quote [conservative economist]
Milton Friedman, because I'm running in the Democratic primary.
But he did say the only problem he had with this proposal --
this is what I've heard, I didn't hear him, someone told me --
is that it would create so much revenue for government that
he's afraid they'd spend it.


    Q. Could you tell us who the intellectual parents of this
plan are?

    A. I'm gathering a list of economists I'll make available
very soon.