From: athos@apple.com (Rick Eames)
Newsgroups: ba.politics
Subject: HERSCHENSOHN: Flat Rate Tax (Q&A)
Date: 8 Sep 92 05:15:09 GMT
Followup-To: ba.politics,ca.politics
Organization: Apple Computer, Inc.

BRUCE HERSCHENSOHN
RQuestions and Answers about The Balanced Budget Flat Rate TaxS

WHAT WILL MY TAX RATE BE?

You will pay a flat 19% rate on your income, with a larger personal
allowance than is available under current law.  This means you will always
know what your tax rate is, and you will know that your fellow workers are
paying the same rate.

YOUURE ELIMINATING DEDUCTIONS. WHAT DO I GET IN EXCHANGE?

The deductions are eliminated only if the entire tax code is changed from
the current 9,306 pages and the tax form is condensed to fit on a postcard
that includes the following:

Total abolition of taxes on interest from savings and other financial
accounts
Total abolition of taxes on dividends
Total abolition of the personal capital gains tax
Total abolition of the federal estate tax

Plus, you get to take the time spent on tax returns and spend it on more
productive uses -- like spending time with your family or earning a living.

SHOULDNUT THE RICH PAY A HIGHER TAX RATE?

Because of the larger personal allowance -- $16,000 for a family of four in
1992 -- the flat tax would be progressive in effect as incomes grow.  After
a point, however, the effect of the deduction would not be noticed for a
high-earner.  That is fair.  The more wealthy pay a higher amount, but
there would be no Rbracket creepS for anyone.

EXPLAIN THE PERSONAL ALLOWANCE TO ME

The Personal allowance replaces the current standard deduction and personal
exemptions.  

The current standard deduction for a married couple filing jointly is
$5,700; the current personal exemption, at $2,150 per dependent, amounts to
$8,600 for a family of four.  The total is $14,300.  The personal allowance
under my plan amounts to $11,400 for a married couple filing jointly and
$2,280 for each additional dependent, for a total of $16,000.  As a result,
the personal allowance under my plan is greater than the standard deduction
and personal exemptions under current law.

This family would pay a flat 19% tax rate only on the money earned above
$16,000, meaning that someone who earns $20,000 a year pays taxes only on
$4,000.  The tax-free status of the first $16,000 is always tax free no
matter the income.

Let me give you some other examples.  A single person would have a personal
allowance of $5,720 under my proposal; today, they get just $3,400 under
the standard deduction.  A single head of household would have a personal
allowance of $10,192 under my proposal, compared to the standard deduction
of $5,000 today.  And all of these personal allowances would be adjusted
for inflation each year.

WHY DID YOU SELECT A 19% RATE?

That rate, when linked with all the other changes in my proposal, is
revenue-neutral.  This is based on the work of two respected scholars at
the Hoover Institution, Drs. Alvin Rabushka and Robert E. Hall.

Because this proposal is so strongly pro-growth, experts agree the rate
will eventually produce a surplus.  ThatUs why, after a transition period,
I want to the link the tax rate to a balanced budget requirement, putting
downward pressure on both federal spending and the tax rate.

TOM CAMPBELL SAYS THIS IS A TAX INCREASE.  IS HE RIGHT?

No, heUs wrong.  I believe he is distorting my proposal to frighten people.
  I am a conservative Republican with a long record of fighting taxes.  I
am the only candidate in this race who campaigned actively for Proposition
13.

If this were a tax increase, I wouldnUt be interested in it.

BUT CAMPBELLUS CAMPAIGN LITERATURE SAYS THIS WOULD RAISE INCOME TAXES FOR
NINE OUT OF 10 CALIFORNIANS.  WHERE DID HE GET THAT FIGURE?

One of his advisors created it out of whole cloth.  My understanding is
that his advisor no longer makes this claim.

WHAT ABOUT SOCIAL SECURITY TAXES?

My proposal does not affect Social Security taxes in any way.

But I hasten to point out the positive effect of this proposal on elderly
Americans -- abolishing taxes on savings and dividend income, and ending
the personal gains tax.  These changes are long overdue, and will be of
tremendous comfort to many of the elderly.

WILL I LOSE MY HOME MORTGAGE DEDUCTION?

Current homeowners will retain a deduction for a long transition period, of
eight to 15 years. But that means the bank also retains the present system
of paying taxes on the interest received from the homeowner.

If the homeowner chooses to forgo a deduction, the bank would offer a much
lower mortgage interest rate, in exchanged for allowing the bank to avoid
paying taxes on the interest it receives from the homeowner.

My proposal is to give current homeowners the option and to provide
incentives to both the homeowner and the bank to lower interest rates.  I
believe most homeowners would opt for the lower interest rate because they
would come out ahead financially.

WHAT ABOUT NEW HOME BUYERS?

They will not get a deduction, but they will pay a sharply lower interest
rate because the bank will not have to pay taxes on the interest income it
receives.

The difference in interest rates would be the same as the current
difference between a taxable corporate bond and a tax-free municipal bond. 
The new home buyer would be in a new market of tax-free home mortgages.  By
putting more after-tax income into the hands of working AmericanUs, and by
lowering interest costs, this proposal will turn millions of renters into
homeowners.

WILL MY HOME LOSE VALUE?

Lower interest rates would be balances off the changes in the deductibility
of new mortgages, and the effects for all but the most overpriced homes
would be minimized or zeroed.

To keep housing prices stable and growing, we need more buyers -- with more
after-tax income.  My proposal does just that.

As we have seen in recent years, the price of a home is linked to the
health of the economy and personal income growth.  My proposal is
pro-growth, pro-family and, therefore, pro-housing.

YOUR PLAN ELIMINATES THE DEDUCTION FOR CHARITABLE CONTRIBUTIONS.  WILL THIS
UNDERMINE THE NONPROFIT SECTOR?

No.  On the eve of the 1986 tax reform, one Harvard economist predicted
charitable giving would drop by $11 billion as marginal income tax rates
fell.  What happened?  Total giving increased 2.7 percent in 1987, then
another 12.1 percent in 1988.  The vast majority of charitable
contributions arenUt currently deducted on anyoneUs tax returns, and would
be unaffected by reform.

Americans are the most generous people in the world -- as I have seen
firsthand, through my work on the board of the Los Angeles Mission, a
private corporation that aids the homeless.  Our generosity as a people
wasnUt invented along with the income tax early in this century, and wonUt
be undermined by reform of the income tax code.

BUT EVERY TIME I TURN AROUND, I HEAR TOM CAMPBELL COMPLAINING ABOUT ANOTHER
DEDUCTION YOU WANT TO DUMP.

I know.  IUm disappointed we never hear him talking about how my proposal
eliminates the personal capital gains tax entirely, or how it eliminates
the taxes on interest income, or how it ends double-taxation on dividends.

I am also disappointed we never hear him explain how his campaign
co-chairman, former Secretary of State George Shultz, urged Ronald Reagan
to adopt a flat tax in the early 1980Us.  I am also disappointed we never
hear him mention the fact that his mentor and academic advisor, Dr. Milton
Friedman, is widely known as the father of the flat tax and has endorsed my
proposal.

HOW DOES YOUR PROPOSAL DIFFER FROM JERRY BROWNUS?

He would make changes in Social Security, and he has a 13% rate -- but with
no standard deduction -- and he has added a 13% national value-added tax on
business.

I think the most interesting thing about the Jerry Brown proposal, besides
the favorable press coverage it has been generating, is that it comes from
a liberal Democrat.  Up until Tom Campbell started attacking the flat tax,
the major thrust of opposition to the idea came from liberals who thought
it was regressive.  With Jerry Brown supporting the idea, the regressivity
argument should go out the window.

ISNUT IT A LITTLE EMBARRASSING TO AGREE WITH JERRY BROWN ON SOMETHING?

IUm delighted.  I will need support from some Democrats in order to reform
the tax code.

WHAT ABOUT BUSINESS?

Businesses would pay a flat 19% tax on net income.  The new 19% business
tax would apply equally to all forms of business income -- corporate,
partnership, professional, farm -- and to rental and royalty income.

My proposal also includes straightforward first-year write-off of all
business investment, both in new and used plant and equipment.  It would
eliminate the complicated depreciation deductions and investment credits in
present law.

First-year write-off of investment would create large tax losses in the
startup years for almost all businesses.  My proposal therefore provides
unlimited carry-forward of tax losses.

WHAT HAPPENS WHEN THE TAX RATE IS LINKED TO THE BALANCED BUDGET
REQUIREMENT?

In the year 2000, which is my objective as a target, the flat rate would be
adjusted in order to provide its share of full funding for the federal
budget and a zero deficit.

Once the flat-rate tax and balanced budget requirements are in place, the
tax rate would be set each year by the President and the Congress as part
of the budget process.

Under my proposal, there would be a built-in incentive for Congress to
spend less, and a built-in incentive for voters to elect a frugal Congress.

BUT WONUT THAT MEAN A TAX INCREASE THE YEAR THIS PROPOSAL TAKES EFFECT?

Between now and the beginning of the Balanced Budget Flat Rate Tax,
Congress must eliminate the deficit through economic growth and spending
cuts.

If Congress doesnUt cut spending, then they will have to explain to the
American people why their inaction or wastefulness has caused each and
every AmericanUs tax rate to edge upward.   They will, for once, work
against a deadline and get the nationUs fiscal house in order out of
political necessity.  (Moral and ethical necessity has not worked.)

My flat-rate is not intended to finance federal spending at any level, but
to reduce federal spending overall.

IS THIS A BLUE-SKY PROPOSAL OR DO YOU THINK IT CAN BE ACHIEVED?

I am more than serious about this proposal.  It has a long intellectual
history -- and, as I have mentioned, is supported by Nobel laureate
economist Milton Friedman and Drs. Alvin Rabushka and Robert Hall of the
Hoover Institution -- and has withstood scrutiny over the years.  The plan
appears in Paul SamuelsonUt introductory college textbook on economics as
the ideal flat tax system.

I believe Americans share my frustration with the tax code and with our
government in general.  I want to be in the United States Senate to make
sure the system is reformed.


--
Rick Eames                               My Opinions Are My Own (not
Apple's)
athos@apple.com

HERSCHENSOHN for US Senate.  Just say "No" to Barbara Boxer.
Newsgroups: ba.politics