Re: Forbes Camp.

Michael S. Lorrey (
Wed, 17 Mar 1999 09:03:59 -0500

The Baileys wrote:

> Michael Lorrey wrote:
> >I fail to see how it could be a fiscal catastrophe. Its generally
> recognised
> >that the 17% rate he proposes is revenue neutral,
> I'm not sure who is "generally" recognizing that Forbes' 17% tax rate is
> revenue neutral, but the U.S. Department of Treasury is not one of them.
> The Treasury estimates Forbes' plan will revenue shortfalls of $200
> billion+. The Archer, Gramm, and Kemp flat tax proposals are as bad or
> worse. Even Robert Hall and Alvin Rabushka, who first proposed the concept
> of a flat tax in 1983, have stated that a flat tax is not tenable.

Those critics at the time failed to do two things: a) they expected to keep all existing loopholes (most would be closed under Forbes' plan)
b) they refused to utilize dynamic scoring (which we can see by today's unexpected surplus is in fact the proper way to calculate tax revenues.)

When these two factors ARE taken into account, the 17% flat tax is in fact revenue neutral.

> >and considering that the
> >average millionaire actually pays taxes in the 14% range indicates that the
> rich
> >will actually pay more.
> First, you pay federal income taxes on your current income, not your net
> worth. Thus, net worth is not a good indicator of effective tax rate.
> Secondly, the top marginal tax rate in the U.S. is 39.6%. Since this rate
> applies to income over $200,000 its obviously wrong to think that the
> "average" top-tier income earner's effective tax rate is 14%. Also, Forbes
> plan eliminates taxation of capital gains and interest. 70% of all capital
> gains and interest income is realized by the top 5% of American society.
> Here we have a tax rate change from 28%/20% to 0%. It is quite clear that
> under Forbes flat tax proposal (and the others as well) that the upper and
> upper middle class will receive all of the tax benefit. Furthermore,
> according to the Treasury, 69% of the tax benefit generated by Forbes plan
> inures to the top 3%.

The top marginal tax rate may be set at that level, but the only people who pay it are those who do not follow the advice of their tax accountant. former Pres. George Bush, for example, and his wife filed a tax return in either 90 or 91 which showed that their income was nearly a million dollars, yet their final tax bill came to only 14% of their income.

Your claim about the tax benefits going to the top 3% are true only if you keep existing tax loopholes, and expect (paradoxically) that everyone is now paying the maximum percentage for their tax bracket, as if they were not using and tax loopholes. Obviously this is cooking the books.

> The flat tax promotes the myth that a simpler tax code must incorporate a
> single tax rate regime. This is absolutely wrong. Forbes, Archer and other
> GOP disciples are attempting to capitalize on the average American's
> ignorance of the complexities of the tax system. The complexity in the
> current tax system is not the progressive tax rate (there are 4 or 5 tax
> rates which are very easy to follow). The complexity in the current tax
> system is determining what is "taxable income".

The problem with a 'progressive' system is that it is easy to hide loopholes for the rich in there, but not so easy with a flat system. The rich get 90% of the tax loopholes.

> We can keep the progressive
> tax concept (i.e., higher income earners pay a larger portion of their
> earnings than lower earners) while simplifying the tax code. But why would
> Forbes and others want to do that when they can captalize on the public's
> distaste for the current tax system by deceiving them into supporting
a huge
> tax cut for Forbes and the rest of his wealthy buddies.

How about because, as the stock market indicates, when people are allowed to keep their money, rather than it being confiscated, the economy grows faster, thus increasing tax revinues. Its called dynamic scoring.

Mike Lorrey