Flat Tax

Republicans will need Wonder Bras to make their flat-tax proposals seductive. GEORGE K. CARLL Long Beach

WASHINGTON — What would happen to home values in the event that popular real estate deductions for mortgage interest and local property taxes were cut significantly? It's an issue you're likely to hear more about as Congress and the Obama administration wade deeper into "fiscal cliff" and comprehensive tax reform negotiations heading into 2013. Some of the forecasts are scary: Any significant reductions in these long-established tax benefits would inevitably trigger declines in home values.

Three major Republican presidential candidates want to replace all or part of the byzantine federal tax code with a "flat tax" that collects a fixed percentage of one's income, with no brackets and few exemptions. The change would give Americans more incentive to save and invest, and less incentive to cheat. But there are other ways to obtain the economic benefits promised by a flat tax without asking the middle class to shoulder more of the tax burden now borne by those at the top. Originally proposed in 1981 by Stanford University scholars Robert E. Hall and Alvin Rabushka, the flat tax is a variation on the value-added taxes imposed in Europe.

In many states, it's hard to find voters who say they don't mind seeing their taxes raised. But this is Illinois, home turf of President Obama and a state in which Democratic Gov. Pat Quinn was elected in 2010 despite saying he wanted to raise taxes to help fill a projected $13-billion budget deficit. Last year, the Democratic Legislature signed off on a bill that raised income taxes by 66% and corporate taxes by 46%. "I'm not against raising taxes if it's going to benefit schools and stuff," said Terry Jackson, the owner of Better Detailers, a shop in this small town in a Republican county just across the border from neighboring Indiana.

Rick Perry previewed the economic plan he will roll out on Tuesday, saying he would call for trashing the current tax code and replacing it with a flat tax, ending all earmarks, enacting a balanced budget amendment and reforming entitlements. "It's time to get Washington out of the way in order for us to preserve the American way," Perry said. "The American people may be bruised but they're not broken and they want a new president who can deliver the hope and change that this one that we have today promised.

Re "GOP Panel Calls for Switch to Flat-Tax System," Jan. 18: The GOP's embrace of the flat tax is puzzling, because the flat tax is antithetical to many of the goals the GOP is pursuing. Like Reaganomics, the flat tax is based on the hope that lower taxes will spur an increase in economic activity and hence an increase in overall revenue. But the magnitude of the proposed cuts is huge; in order to maintain revenue, the economy would have to grow at a torrid pace, entailing very high (probably double-digit)

We all know what happened in the '80s and its aftermath. The trickle-down theory strapped us with mounting debts and left the economy to stray away. Modified flat taxes eliminated the fairness of progressive tax theory. President Bush was perfectly correct when he termed the supply-side economics as voodoo economics in the 1980 primaries. Finally Laffer's curve turned out to be a "big laugh"! NANDA SENATHI Los Angeles

Re "A Fair Flat Tax to Rally Behind," by Michael Dukakis, Commentary, March 15: I'm afraid Dukakis makes a fundamental error in his logic: The Social Security tax is not an income tax, and its taxation methods cannot be compared to the flat-rate methods being proposed for income taxes. The Social Security tax is supposed to be (though in reality it is not) a way to "pay in advance" for your retirement. In theory we are merely setting aside money (albeit involuntarily) that will eventually come back to us as retirement benefits.

Re "Forbes, Flat Tax a Hit at Fund-Raiser," Jan. 11: One of the main points of the address in Irvine by Steve Forbes was his desire to replace the very complicated federal income tax code with a flat tax. The article states, "His plan would tax all earned income at 17%. . . ." It very cleverly omits a further statement by Forbes that each person would have a basic exemption of $13,000 and each child under 18 a $5,000 exemption before any tax would be due. Thus, a man and wife with two children would have a basic exemption of $36,000 before any tax would begin.

Herman Cain will deliver the tea party rebuttal to the president's State of the Union address next week. Cain, who dropped out of the GOP primary in December, will have a chance to "square off with the failed politics of the Obama administration," Tea Party Express said in a statement announcing the Tuesday speech. This will be the second tea party response hosted by the California-based political action committee. Rep. Michele Bachmann (R-Minn.) delivered remarks last year carried live on CNN. It was not yet clear whether the networks planned to air Cain's remarks.

Ideas for improving the federal tax system are launched almost daily. Reformers have proposed a flat tax, an optional flat tax, the Buffett Rule. They've advocated broadening the tax base or instituting taxes on consumption or carbon. Though most tax reform proposals are promoted as simplifying and rationalizing our extremely complex tax code, almost all lack critical details. But with tax cuts expiring and automatic spending cuts looming, taxation will return to the center of debate early in 2012.

The GOP candidates who are struggling to make a mark in the presidential race gathered in Des Moines on Friday night to press their case before committed Republican activists who will decide their fate in 60 days, when Iowans hold their first-in-the-nation caucuses. But unlike most times the candidates appear together, there was little bickering. While a few made veiled swipes at their rivals, they reserved their harshest words for President Obama, saying he has made the recession worse, has a dangerous foreign policy and that he is, essentially, in over his head.

Salary nonsense Re "Mayor's ex-aide still on payroll," Oct. 29 It's nice to see that our illustrious mayor has his priorities in order by allowing his former chief of staff to draw his $194,000 salary even though someone else has been hired to replace him. The ex-staffer is being compensated for installing security fences around Mayor Antonio Villaraigosa's city-owned mansion and improving the city's golf courses, among other things....

Rick Perry's so-called flat tax plan would drain a titanic sum from the federal treasury and largely benefit wealthy taxpayers over those in the lower brackets. That's the upshot of an analysis of the plan by the nonpartisan Tax Policy Center. Perry last week unveiled the plan, which calls for an optional 20% flat tax on personal and corporate income but would also allow taxpayers to remain in the current system. The plan was derided by some conservatives for not going far enough in eliminating the federal tax code completely.

When Herman Cain wasn't defending himself Monday over explosive allegations that he sexually harassed two employees more than a decade ago, he was defending his hotly debated '9-9-9' plan. That had originally been the point of a D.C. sojourn that had been envisioned as a sort of mash-up of classic movies, a “Citizen Cain Goes to Washington.” Still flush in the polls, the self-described outsider was coming to talk taxes, make contacts with the GOP establishment, and perhaps spark some contributions.

Tax reform proposals are the political equivalent of science fiction: entertaining but imaginary. No tax proposal ever passes through Congress unscathed. There are too many interests that believe their survival depends on tax preferences — hence the tax code's immutable tendency to accumulate complexities as a ship collects barnacles. Still, presidential candidates' tax proposals are useful windows into their philosophies. Should income taxes on the wealthy go up or down? Should income from investments be taxed at a different rate than income from labor?

Returning to South Carolina, a state key to reviving his presidential candidacy, Gov. Rick Perry unveiled what he said was a “bold” tax plan to revive the nation's economy. The Texas governor, speaking at the warehouse of a specialty plastics company south of Greenville, proposed a flat tax plan that critics said would worsen the federal deficit. Perry's plan includes an optional 20% flat tax for individuals and corporations. But he would allow anyone to remain with the current tax system, insuring that no one's taxes would go up and threatening to cut federal revenue by hundreds of billions of dollars a year.