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.