A Bad Idea from Brookings
BROCKWAY, GEORGE P .
The Dismal Science A BAD IDEA FROM BROOKINGS BY GEORGE P BROCKWAY A couple of months ago I had occasion to mention Gary Hart's search for "a better title" for the radically new form of taxation...
...but there is no doubt that a civilized state must have taxes, that just taxes are levied in accordance with ability to pay, and that ability to pay turns on income and wealth, not on savings...
...It does not," the authors say, "propose any shifts in the tax burden among economic classes...
...We belong to the American Association of Retired Persons and the Grey Panthers and such...
...The first line of this table shows "Projected surplus or deficit under policies in effect January 1, 1981" (that is, when President Reagan took office), and the last line shows the projections "under policies in effect January 1, 1984...
...We got taxed on the salaries from which we saved to make our nest eggs...
...In a long pamphlet entitled "Economic Choices 1984," the scheme is called a "cash flow tax...
...On the basis of the foregoing I propose a new law of political science: In any confrontation between neoconservatives and neoliberals, the neoconser-vatives will always win, because the neoliberals will allow them to keep whatever they have previously gained, regardless of when or how they gained it...
...In fact, the straight consumption tax people could take the same step without breaking stride, so it is a distinction without much difference...
...For the rest of our lives we're going to be dissavers...
...and it is proj ect-ed, under the existing law, toriseto 17.5 per cent in 1986-89...
...Round up the usual suspects...
...Remember those figures when President Reagan tries to tell you that the deficit was caused by Democratic spending...
...Following this, we are told that fiscal policy and monetary policy are at cross purposes, that Medicaid and Medicare cost more than expected, that many a father shirks his responsibilities to his children and their mother, that the B-l bomber, the MX missile and various flocks of airplanes and schools of warships are a waste of money...
...After all, if David Rockefeller, Walter Wriston and I don't spend our income, we don't live...
...Brookings, by the way, proposes that each household have a lifetime exemption of $200,000 for such purposes...
...Rockefeller and Wriston might be able to live with that, too, because they have probably had accountants working for them night and day all their lives...
...Given the inherent imprecision of these figures, they are nothing to bet your life or livelihood on...
...All right...
...It would not be difficult to convince me that the neoliberals have their priorities precisely wrong...
...We have the clout to insert a little provision in the law to the effect that those who have to be dissavers because they have no other income would not be taxed...
...The deficit, however, is Reagan's very own...
...Receipts would include all wages and salaries, rent, interest, profits, dividends, transfer payments, gifts received, and inheritances...
...Well, the Brookings Institution (described by the New York Times as "a liberal think tank") has solved Hart's problem...
...And a complementary proviso declares that if the scheme should prove to be heavier on corporations than the present law, rates would be revised to restore the "balance...
...over $40,000 per year...
...Here I want to conclude with a reference to a table in the Brookings pamphlet, whose burden, as I mentioned at the outset, is that the deficit is going to destroy the economy unless we do something drastic in a hurry...
...and now we' re going to be taxed a third time when we use the income to live on...
...I hold these truths to be self-evident, and I therefore hold that the first test of any tax law is whether it contributes to the rectification of these faults...
...But their own figures show that private saving (both individual and corporate), as a percentage of GNP, was 16.2 per cent in the 1950s and 16.3 per cent in the 1960s...
...Just as additions to saving would be deducted from income, such dissaving as the sale of stock or withdrawal from a bank account would be added to the tax base...
...Hecan, if he wants, blame the recession on Federal Reserve Board Chairman Paul Volcker...
...It is doubtful that a state of nature would be ideal for anyone...
...This is nonsense...
...Well, you know what would happen...
...They have two principal reasons, both ideological...
...For joint returns, existing revenues could be matched with a 5 per cent tax on the first $ 10,000 of taxable expenditures, 20 per cent on the next $30,000...
...Now listen to me...
...This would only be fair...
...Voodoo on the Primary Trail," NL, April 20...
...2. Since the paperwork necessary to complete a cash flow tax return would hardly be much less than that for the present return, the new tax would not be substantially more "efficient" than the existing one...
...As John Maynard Keynes said, "The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes...
...Try that on your recordkeeping problem...
...We senior citizens are not so easy to kick around anymore...
...If an income tax were similarly astringent (I'd be in favor of that) it could achieve still lower rates, for it would not have made that massive deduction for saving...
...The first thing to note about the Brookings statement of this tax is a disclaimer...
...Indeed, if the present tax eliminated deductions and the special treatment for depreciation and capital gains, the return would be a piece of cake for almost everyone, like the present Form 1040A...
...we got taxed on much of the income earned by those eggs...
...But none of this is news, as the cash flow tax is purported to be...
...The other ideological notion is that the ideal economy would be one without taxes, and that the cash flow tax is similarly "neutral...
...True, these were the allegedly prosperous years...
...You will remember that similar disclaimers and provisos are included in the plan put forward by Senator Bill Bradley (D.N.J...
...3. The switchover from an income tax to a consumption or cash flow tax would present horrendous problems...
...The Dismal Science A BAD IDEA FROM BROOKINGS BY GEORGE P BROCKWAY A couple of months ago I had occasion to mention Gary Hart's search for "a better title" for the radically new form of taxation he referred to as an "expenditure tax" or a "consumption tax...
...Savings would include all net payments into certain 'qualified accounts,' including all financial assets (stocks, bonds, and other securities), all accounts in banks and other depository institutions, the cash value of life insurance, and real estate (except owner-occupied housing...
...I'll take a little space to explain one that is near and dear to my heart: What do you do about recently retired individuals like David Rockefeller, Walter Wriston and me...
...There are many other things to be said about consumption taxes and consumption-like taxes...
...I will make just three points: 1. Those seductively low rates are achieved, not because of the miraculous properties of the cash flow tax, but because none of the deductions—other taxes paid, charitable donations, interest paid, and the rest—would be allowed...
...With that in mind, let's look at Table 2-4...
...it is now less than 10 per cent...
...A Cautionary Tale of Tax Reform," NL, January 23...
...The projection for 1989 on the first line is a surplus of $29 billion, while that on the last line is the now-familiar deficit of $308 billion...
...economy and undermining the ability of American industry to compete in world markets...
...and 32 per cent...
...The Brookings people are aware of this difficulty, and they have a solution whereby "each household could calculate the aggregate cost of all assets accumulated from savings out of previously taxed income ('basis' in current tax law) and claim an exemption spread over a number of years for consumption until the aggregate cost had been recovered tax free...
...The Brookings people insist that this feature distinguishes their levy from a straight consumption tax...
...The rest of us, who can read the words of the "solution" but are not even quite sure what they mean, and who certainly do not have meticulous records stretching over 65 years and more, might wonder what happened to the advertised simplicity of the new tax...
...To keep my bias from showing, let m equote from the pamphlet: "Each taxpaying unit [household] would be taxed on all cash receipts, minus net saving...
...For futher information I refer you, as I have before, to Robert S. Mclntyre of Citizens for Tax Justice, 2020 K St...
...If it is adopted, the person who thought up the new name will be as much to blame as anyone...
...20006...
...What, then, is a cash flow tax...
...Personal exemptions would be allowed as under the present personal income tax, although the amount should be modified...
...But for you poor slobs who still work for a living the rates would have to go up...
...You may also have noticed that when the Reaganites undertook to remake the tax laws they had no compunction whatever about shifting the burden from the rich to the poor or reducing the share paid by corporations (the corporate share had already declined from 26.5 per cent in 1950 to 12.4 per cent in 1980...
...Parts of it remind one of Claude Rains' line at the end of Casablanca: "Major Strasser has been shot...
...Messrs...
...First, they have got hold of the notion that the trouble with the American economy is a lack of saving...
...Now, I am persuaded that all of these suspects are guilty as charged, and I have no doubt that the list could be considerably extended...
...and Representative Richard A. Gephardt (D.-Mo...
...And of course everyone knows that the current recovery has been led by consumption, not by saving...
...Nevertheless, one thing is certain about them: They do not support the view that the economy has been in trouble because of a lack of private saving...
...In the opening sentence of the opening chapter we learn that "High deficits in the Federal budget, together with high interest rates, are endangering the future growth of the U.S...
...The proposed cash flow tax deliberately fails this test, except to the extent that it pays some attention to gifts and bequests...
...Why do the Brookings people want to make what would be a fantastically complicated change...
...The Brookings pamphlet, edited by Alice M. Rivlin, distinguished former director of the Congressional Budget Office, concerns many issues besides taxation...
...Yet in the 1970s, when things are supposed to have fallen apart, the rate was 17.1 per cent...
...NW, Suite 200, Washington, D.C...
Vol. 67 • August 1984 • No. 14
