A Flawed Flat Tax and the Way Out

by Patrick J. Buchanan – January 17,1996

The New York Times

The flat tax of Steve Forbes seems to have been rooted in the dictum that “what’s good for Bohemian Grove is good for America.” Indeed, it appears to have been drafted on the back of a menu, after a bibulous evening with the boys down at the yacht basin.

Under Mr. Forbes’s plan, the middle class looses all deductions for home mortgage interest and church contributions; the Federal budget would be thrown scores of billions of dollars deeper into deficit, and lounge lizards in Palm Beach pay a lower tax rate than steelworkers in Youngstown.

No wonder the Forbes plan is being toasted from Marin County, California, to Hobe Sound, Florida.

Under the Forbes flat tax, should Bill Gates, with a fortune estimated at $l2 billion, decide to retire early, he would never again pay a dime in taxes for the defense of his country. But the men and women who continue to work at Microsoft would have to pay at 17 percent. A tax idea that produces such inequity would be laughed out of Congress.

Once dissected, Mr. Forbe’s simplistic version of a flat tax may just bring into terminal ridicule an idea with immense merit and appeal. What should be done with Mr. Forbe’s flat tax? It should be taken into the bodyshop for a major overhaul.

First, restore the deductions for mortgage interest and contributions to charities, both of which are rooted in middle-class values. Next, exempt from inheritance taxes only estates up to $5 million, covering family farms and family businesses, but keeping some inheritance taxes on the super-rich.

Third, “impose consumption taxes” on the imports of foreign nations that steal our intellectual property and impose tariffs on our goods. Or, like Japan, use nontariff barriers to run up annual $65 billion trade surpluses at our expense. Further, impose an “equalization tax” on the imports of third-world countries where wage rates are so far beneath those of the United States that they have become meccas for transnational corporations anxious to off-load their American workers on the junk heap of the “global economy” and hire Asians at a tenth of the price. Corporations that close factories here, and open them up abroad, should pay a price of re-admission to get their goods back into the United States.

And every dollar of those tariff revenues should be used to cut taxes on American small businesses, which have been hiring the millions of workers who have been laid off or fired by the corporations that provide the munificent ad revenues for Forbes magazine.

The problem with the Forbes flat tax is that it is grounded in the idea that the best way to feed the sparrows is to first feed the horses. But we have entered a new world. What is good for General Motors is no longer good for America, if General Motors is shutting down plants in Michigan and Ohio, and opening them up outside Mexico City.

All four Presidents on Mt. Rushmore were economic nationalists. All four believed it was the duty of the national Government to produce policies that led to the economic independence of the United States, the industrial supremacy of the American nation, and the highest standard of living in the world for American workers.

The true measure of economic success is not whether America’s gross domestic product is setting records, but whether the standard of living of America’s middle class is steadily rising. And today, it is not. The middle class finds itself on a slippery slope, losing its grip on the American dream.

The great disputed province of American politics is this angry, alienated middle class that believes, not without justification, that its Government is run by and for powerful special interests who buy their influence with envelopes of PAC money. They are right. The Republican party will not win them back with a “flat tax” that says David Rockefeller has paid his last dime into the Treasury of the United States.