Politics

Created 10/23/1998
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Matt Fong's Flat Tax

J. Bradford DeLong
October 23, 1998

750 words

Notes for a press conference


"Throughout our hearings, citizens told us that what they want more than anything else in a tax code is the knowledge that everyone, from one end of the income scale to the other, is being treated the same. That is the beauty of a flat tax."

It's Matt Fong, our Treasurer--which means he is supposed to know a lot about tax policy--and the Republican candidate for U.S. Senate. It's Matt Fong and his flat tax.

"Middle-income Americans are not under-taxed, they are over-taxed... True tax reform helps the average middle-income family achieve the American Dream."

Wait a minute. The main effect of the flat tax is to cut taxes on the rich--those making upwards of $150,000 a year--and to bost taxes on the middle class. The flat tax is a bet that tilting the distribution of taxes in favor of the rich--so that the middle class pays more and the rich pay less--will spark an increase in economic growth. The flat tax is not supposed to be a tax cut for the middle class. Is Matt Fong really stupid, and does he not realize this? Does Matt Fong think that we're so stupid that we won't notice the contradiction when he implies that the flat tax is a tax cut for everybody?

What's so great about the idea of a flat tax anyway?

"Each taxpayer must be treated equally. That is, proportionately everyone should pay the same tax."

Well, no, I don't think each taxpayer should pay the same proportion of income in tax. I think single mothers making $12,000 a year should pay no income taxes at all. I think tenured Berkeley professors with subsidized housing loans should pay a higher proportion of income in tax. A lot of differences in income in this country today are the result of skill, industry, and initiative, but a lot of differences in income today are the result of luck.

And I think that the burden of paying for the government should fall proportionately more heavily on the lucky and the rich--for whom the burden of higher taxes is that they can then afford one fewer luxury. That one of the key ideas of social insurance: that the tax burden should fall more heavily on the rich so that the extra money can be used to shave the middle-class tax burden and give a boost to the living standards of the poor.

If you want to have a political discussion about what a fair distribution of the tax burden would be, good. But you cannot have such a discussion if you insist on claiming that the flat tax is a fair tax that lowers taxes for everybody (except the working poor, for whom it raises them).

"The scoring of tax reform plans and the generation of tax distribution tables ... will not work. It is simplistic and is not fit for use in the '90s world of high tech modeling."

What are you saying, Mr. Fong? That the flat tax will be a tax cut for everyone? That things are different in the 1990s world of "high-tech modelling"? But we've been down this road before, in the 1980s. You can say that Ronald Reagan's presidency was very successful in many dimensions, but not in its tax policy. It left us with our current $4 trillion government debt: we are now paying $200 billion a year in extra taxes--$3,000 for a family of four--simply to pay the extra interest the government owes. In the long run the Reagan tax cut of 1981 was, because President Reagan never proposed spending cuts to match it, the cause of the very big tax increases needed to raise the $200 billion a year to pay the extra interest on the national debt.

Is that what the flat tax will really do--win elections for Mr. Fong in the short-run, and boost taxes by $3,000 per family in the long run?

"...the reason for the federal government's collection of only 25%-30% of the original staff estimates of the revenue to be raised from President Clinton's [1993] tax increases."

But the 1990 ("Bush") and the 1993 ("Clinton") tax increases (and some good economic luck) have given us a balanced budget: the federal government has collected more than 100% of the original staff estimates of revenue to be raised.

Does he think we are so stupid that we didn't notice that the federal budget is now balanced, and that the Bush-Clinton tax policy has been a success?

Why are we thinking so seriously about electing this guy?


All quotes from Matt Fong's January 17, 1996 press release; and from his January 31, 1996 testimony before the Senate Finance Committee.

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley.


Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
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