THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, March 3, 1996 TAG: 9603020005
SECTION: COMMENTARY PAGE: J5 EDITION: FINAL
SOURCE: PERRY MORGAN
LENGTH: Medium: 80 lines
The flat tax has done more than Buchananism to jumble the GOP primary picture and put at risk a balanced budget and other goals of the Republican ``revolution'' of 1994.
Hope of substituting the flat tax for the existing income tax brought Steve Forbes into the race with the galvanizing promise that a nation mired in debt could afford a tax cut for everybody and a huge one for the better off. With that sweet notion and unlimited spending from his own huge fortune, the unknown Forbes changed the image of Bob Dole from front-runner to fossil, pauperizing Dole's campaign in the process. The senator wound up needing more money and more ``message'' than he dreamed of, all because of a myth.
The myth is not the concept of a flat tax, but the miraculous claims made on its behalf. When Dole first snorted that Forbes thought the tax would cure everything from headaches to fallen arches, some thought he was being derisive. Not so. Advocates eagerly assert that pushing the right economic buttons (and they have the combination) will bring a transforming shower of blessings.
Jude Wanniski, one of the conjurers of Reaganomics, ticks off the benefits in the Feb. 26 issue of The Wall Street Journal. By cutting taxes, he writes, you ignite growth and get wages rising twice as fast as taxes. This reverses the trend that requires two breadwinners in most families to make ends meet. With Mom or Dad staying home, children behave, spouses communicate, divorce declines and so does abortion. Why has no one thought of this before?
Well, you might ask, if insufficient income is the root cause of social problems, why aren't high-income families already free of them? The question must have occurred to Wanniski in midflight because he added disjointedly: ``Even those families blessed with high incomes and wealth feel the pressures associated with (a) 30-year contraction of real wages. The crime rate is only one manifestation of the national anxiety that touches us all. The racial divide has become the most serious of all social problems in our national family. There can logically be only one answer: In the period ahead, wages must rise twice as fast as prices.'' And the key to that, says Wanniski, is instituting the Forbes version of the flat tax and returning to the gold standard.
Now Wanniski doesn't plainly state that a flat tax (one Forbes would impose on wages while letting interest, dividends and capital gains go free) will reduce crime and racial antipathies, but the implication is as clear as the slovenliness of his logic.
So is the absence of any evidence to support anything claimed for the flat tax, it being an untested scheme. True, The Journal got 11 notable economists to say that the generic flat tax is ``not nutty'' - hardly an endorsement. More interesting would be the views of 11 notable anybodies on whether Wanniski and Journal editorialists themselves are nutty.
Along with Jack Kemp and a few others, they led the conversion of the Republican Party from pay-the-bills conservatism to supply-side Reaganomics. The result was spending and borrowing money on a scale never before seen in human history: In 10 years, the United States went from being the largest creditor nation in the world to the largest debtor nation. (Over that period, by the way, Bob Dole held his finger in the dike, raising revenues where he could, for which service he was savaged as an eager taxer first by candidate George Bush and now by Forbes.)
Well, there's no doubt you can get growth by cutting taxes (or, as regards Bill Clinton, by raising them). What matters is what follows. What followed growth induced by the Reagan tax cuts was a spending spree on arms and all domestic constituencies with $1.21 going out for every additional tax dollar taken in. Which in time brought Republicans to power in Congress with a promise followed by actual efforts to restore some fiscal discipline. It was upon this issue and a showdown with the president that Forbes and Wanniski intruded with their ``not nutty'' scheme aimed first at winning the presidency for Republicans and, second, at giving the biggest free barbecue in history to those who need it least.
Herbert Stein, an economic adviser to President Nixon, suggests that it's silly to embrace new tax reforms before knowing what's to be done about current deficits and overspending on entitlement programs. That's good advice - old, dull and sound. Like Dole. MEMO: Mr. Morgan is a former publisher of The Virginian-Pilot.
by CNB