Monday, March 30, 1998

Flat tax - a patently absurd notion

By Molly Ivins

AUSTIN - In the Batty Ideas Department, one of my favorites is the repeal of the progressive income tax and the substitution of a flat tax. This charming notion - currently being pushed by the Republican chairman of the House Ways and Means Committee, among others - has the deceptive appearance of fairness. What could be more just? Bill Gates will pay exactly the same percentage of his income in taxes as a ditch-digger, a waitress or a mailman. One for all, all for one - think how fair it will be.

Actually, we already have an effective flat tax, as a recent study at Columbia University shows: Because payroll taxes are so regressive, all of us, from rich to poor, pay about one-third of our income in federal taxes. According to the Columbia report, our once progressive tax system has already been radically altered by the changes made during the 1980s. "The government expects more from the poor and less from the well-off, more from married couples jointly filing their returns and less from singles and heads of households."

According to an editorial in the Capital Times & Wisconsin State Journal: The Columbia study says the nation's poorest - those with incomes up to $5,000 a year - have fared worst. They hold on to 18 percent less of their income than people in similar circumstances kept 15 years ago. People with incomes of $50,000 and up are doing the best. They keep up to 57 percent more of their income than they did in 1980. The people in the middle, making up to $50,000 per, keep the same amount of their incomes as in 1980 - but they end up paying about 5 percent more to the Social Security system.

You may wonder where you were while all this was being debated, but in fact, we never had a national debate on whether we wanted to scrap the progressive income tax; it was done quietly and in the name of other concerns. To go in now and further "flatten" the income tax, as Reps. Bill Archer of Texas and Bob Livingston of Louisiana propose, would actually be totally regressive.

Because repealing even the remnant of the progressive income tax we now have seems to me so patently absurd, I went back to study how we got a progressive income tax in the first place. You may recall we actually had to pass a constitutional amendment, the 16th, in order to do so because of an iffy decision by the Supreme Court in 1894. This country first passed an income tax in 1862 to pay the extraordinary expenses of the Civil War, and it was allowed to lapse in 1872.

Debate continued for the next 40 years, with some of the finest political rhetoric of the era expended on the question. When Congress finally passed the proposed amendment, many Republicans voted for it on the happy assumption that it would never pass the ratification process. But it did so in an expectedly short time; it was adopted on Feb. 3, 1913.

At the beginning, the income tax applied only to the rich: 99 percent of the population was exempt. The rates rose gradually until the 1920s, when powerful Treasury Secretary Andrew Mellon began to lower them.

The tax was riddled with exemptions from the beginning, and the rich quickly moved to shelter their income from it. According to American Heritage magazine: "The interest on state and local bonds was not taxed. Gifts and inheritances were exempt. So were the proceeds of life insurance policies, giving the life insurance lobby the honor of being the first of countless thousands to extract a favorable income tax proviso from Congress."

In the Congressional Record for July 12, 1909, when the House passed the proposed amendment, is a remarkable debate. At one point, Mr. James of Kentucky speaks:

"For a century, this law had been held constitutional by an unbroken chain of decisions, reaching from the first link forged by the revolutionary judges down for more than a hundred years; a chain of decisions so strong that Abraham Lincoln girded it about the Republic in its darkest hour in the War Between the States. It stood by all these tests and grew strong with age. It is as just a law as the Republic ever made, so fair and so righteous that it might be called the Golden Rule of Taxation. It is the ideal way to support the government.

"Who is prepared to defend as just a system of taxation that requires a hod carrier, who for eight long hours each day wends his way to the dizzy heights of a lofty building with his load of mortar or bricks, to pay as much to support this great Republic as John D. Rockefeller, whose fortune is so great that it staggers the imagination to contemplate it? Who believes that it is just to say that 23 farmers in my district, who by a life of self-denial and unceasing toil have been able only to accumulate 200 acres of land and a modest home, who in sunshine and storm labor on, who by such a life only own in this world's goods $5,000 each, is it just, I inquire, for these men to pay as much taxes to keep up this government as the 23 men who compose the directorate of the New York City Bank, which has a controlling financial power of $11 billion, or one-tenth of the wealth of the United States?"

Creators Syndicate, Inc.