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The following articles were written by Doug Henwood and appeared in Left Business Observer issues #51 (February 1992) and #52 (April 1992). They were written by Doug Henwood, editor and publisher. They retain their copyright and may not be reprinted or redistributed in any form - print, electronic, facsimile, anything - without the permission of LBO.
update to printed version (1995)
According to an advisor to Brown, Arthur Laffer -- the fellow who drew a curve on a cocktail napkin (one that showed that lower tax rates led to higher collections) and thereby gave birth to supply-side economics -- was the real author of Brown's loopy tax plan [CBO analysis below]. Wanniski or Laffer, it has a loony Republican/nouveau riche pedigree.
another update (1998)
Jerry says this is all old news; presumably when you live in the eternal present, the past counts for little. For his side of things, click here.
Like Richard Nixon, Jerry Brown just won't go away. Unlike Nixon, Jerry's swooping in from a stint with Mother Theresa, where he rediscovered Catholicism and learned that abortion is "crazy." Surprisingly, he's doing pretty well in the polls, and he's even made a few friends on the left.
In a January appearance in New York sponsored by The Nation, Brown briefly charmed this first-time viewer. He denounced the national power elite, intoned a world beyond material accumulation, and gave evidence of having had a thought or two in his life. A little research was in order.
First stop was J.D. Lorenz's book Jerry Brown: The Man on the White Horse. Lorenz, founder of California Rural Legal Assistance, spent seven months as Gov. Brown's first employment director, vainly trying to convince the governor to craft a jobs program during the mid-1970s recession. Lorenz was canned for base political reasons, and got his revenge by writing an amusingly nasty book.
At first, Lorenz was ready to cut Jerry some slack. When Brown told Evans and Novak that welfare mothers were going to have "to tighten their belts," he dismissed it as just "sounding off." The welfare moms remark reminded Lorenz of a moment in the campaign when Jerry enthused about his great new law & order TV ad. Reciting its script to Lorenz, Jerry punctuated it every five words or so with a fist-chop and the expletive "buzz word." Five fist-chops, five buzz words. "I sound tougher than [his opponent, Houston] Flournoy, and I haven't proposed anything the liberals can criticize me for. In fact, I haven't committed myself to do anything at all."
That's the essence of Brown's rhetorical strategy - to create, as Lorenz put it, "an ambiance of possibility that gave the viewer space: space to project his fondest wishes onto Jerry, space to identify with Jerry...." This requires talk of process rather than solutions, questions rather than answers.
Lorenz' title comes from a conversation with Brown in late 1974. Jerry mused: "People want a dictator these days, a man on a white horse. They're looking for a man on a white horse to ride in and tell them what to do. A politician can do anything he wants so long as he manipulates the right symbols." This talk of confusion, corruption, and rescue by a pure father suggests the psychology of fascism. Of course, Jerry himself isn't a fascist, but there's something scary about him and his appeal.
Not that there isn't a nasty side to Jerry behind the Zenmellow. Lorenz watched as he hacked at the welfare budget with a severity that shocked even Reagan-era holdovers in the state welfare department. Brown hindered Lorenz' attempt to hire a black assistant, apparently because, as Jerry said, "blacks [were] the wrong symbol in the 1970s." Chicanos were OK - in late 1974, Jerry told Lorenz that he planned "to tilt towards the Mexican-Americans" - but blacks were bad, imagewise. Except blacks were useful in Jerry's racist fantasy of an integrated work-camp for teenagers: "The black kids can teach the white kids how to fight and the white kids can teach the black kids how to read," he mused.
Work camps, yes; school lunches no. Jerry once asked Lorenz: "Are poor kids really hungry, or is that another liberal myth? I don't know why we should subsidize school lunches. Nobody ever gave me a school lunch when I was a kid." Well, not exactly. But since his father was state attorney general and then governor, his whole childhood was publicly subsidized. Having trashed poor kids, Brown moved on to women: "More women should be in the home, taking care of their children. Then we'd have fewer social problems." Now Jerry brags about how many women and minorities he appointed to state office and having signed legislation providing "at least one meal a day to underprivileged students."
Jello Biafra and his colleagues in the Dead Kennedys were onto something in their 1980 anti-Jerry anthem, "California uber alles." Biafra told LBO that he found in Brown and 1970s California hints of an "eco-deco-fascism" reminiscent of Germany in the 1920s.
Take moral purification, add casual racism, welfare cuts, work camps,
and women-back-to-the-home, combine with spiritualist reflection: Zen fascism.
Next stop after Lorenz' book was a call to someone who's been following Brown for 20 years, Sacramento Bee political columnist, Dan Walters. Walters offered the following as the perfect Jerry Brown anecdote. At first, Brown opposed Proposition 13, the 1978 property tax-limitation initiative that has contributed a lot to California's current fiscal crisis. But when it passed, Jerry declared himself a "born-again tax cutter." Localities, stripped of $7 billion in revenue almost overnight, hacked away at services. When the legislature passed an emergency $30 million appropriation to keep some local libraries open, the born-again Brown vetoed it. Days later, however, Jerry quietly allowed a $30 million tax break for the horse racing industry to become law. Millions for bookies, nothing for books, as Walters put it. But it wasn't just horse racing; Jerry's administration was a font of goodies for Hollywood, booze merchants, and Indonesian oil interests, too.
The last connection is interesting, given Brown's current speechifying
about human rights. His father, Edmund G. "Pat" Brown Sr., has
lawyered and lobbied for the Indonesian state oil company, Pertamina, since
the 1960s, when he first buddied up to the country's savage military regime
(recently famous for yet another massacre in East Timor). Indonesian oil
made the Brown family rich. Though Jerry refused any direct partnership
interest, Pertamina contributed $70,000 to his first gubernatorial campaign,
and insofar as he lives off subsidies from his father, continues to keep
him in crusades. Jerry's administration also issued a couple of regulations
that had the effect of assuring that Indonesian oil continue to be burned
in California power plants. [For full details, see Walters' column in the
October 15, 1990 Bee.] But when asked what he thought about the Indonesian
regime by WBAI's Amy Goodman, who was recently injured by the Indonesians
in East Timor, Brown professed to know nothing of the situation.
Jerry has made the corruptions of campaign finance the centerpiece of his presidential campaign. This is an odd turn for a man who'd raised almost $20 million during his hyperactive political life - the perpetual candidate ran for office in 1970, 1974, 1976, 1978, 1980, and 1982, since campaigns are so much more fun than holding office - mainly from the very fat cats he now scorns.
This is only one example of Brown's flexibility. Jerry became chair of
the California Democratic Party in 1989, promising to serve the full four-year
term and to launch a big voter-registration drive. He dropped the registration
drive to fight a term-limitation ballot initiative - but he now favors term
limits. Brown claimed credit when his law firm successfully challenged California's
limits on campaign donations - but now he denounces big money politics and
refuses any contribution larger than $100. And though he denounces all the
slick machinery of modern campaigning (a message crafted with the help of
the "outsider's" favorite consultant, Pat Caddell), as party chair,
he touted the virtues of a technology-driven party armed with "a small
donor base, a sophisticated voter file and voter targeting capacity."
Brown's 1992 platform is largely intangible. But his reactionary streak is visible in one of his few specific proposals, his horrid tax scheme. Crafted with the aid of Jude Wanniski, the engagingly lunatic former Wall Street Journal editorialist who is the father of supply-side economics, Jerry's scheme would abolish all federal taxes - income, social security, corporate, excise, everything - and replace them with a flat 13% tax on gross income and a 13% value-added tax (VAT). (A VAT, to oversimplify somewhat, is a kind of national sales tax.)
The combination is about as regressive a tax system as you can devise. Though the system could be fine-tuned with some deductions, its essential structure is simple: the richer you are, the less of your income goes to the taxperson. This, says Jerry's handout, is "a silver bullet solution for the '90s."
Not even Bill Clinton could come up with something as awful as Brown's tax program. Send this Lone Ranger back into obscurity!
CORRECTION Jello Biafra, the musician and polemicist, was quoted in the last issue as having worried about a trend towards "eco-deco-fascism" in 1970s California. Biafra was misquoted. What he actually worried about was "orgo-deco-fascism." He emphasizes that he has nothing against environmentalists. Sorry.
In last month's issue, we denounced Jerry Brown's proposed overhaul of the federal tax system as "horrid," without going into detail. Here's the detail, plus a look at another Brown scheme that's attracted little attention, enterprise zones.
Jerry would scrap most current federal taxes - personal and corporate income, gift and inheritance, excise (including gasoline, but, in a fit of moralism, sparing "sin" taxes on booze and butts), and social security - and replace them all with a flat income tax and a value-added tax (VAT), both fixed at a 13% rate. According to Brown, this would frustrate all the "special interests" in Washington who've manipulated the tax code to their own advantage, and would replace an excessively complex system with a delightfully simple and fair one. Before crunching numbers, let's look at the intellectual pedigree of these proposals.
A flat income tax taxes everyone, rich and poor, at the same rate. Though most recently associated with two conservative economists, Robert Hall and Alvin Rabushka, an important earlier proponent was Milton Friedman, who wasn't at all concerned about simplicity and fairness. Friedman's honest defense of flatness is refreshing after Brown's duplicity. In his 1962 book Capitalism and Freedom, the father of modern monetarism argued that a person's income represents the free market's judgment of his or her contribution to society, and a progressive tax overturns that verdict. It is the revenge, he argued, of those who've "drawn blanks" in the great lottery of life. Friedman himself proposed a flat personal tax rate of 23.5%, with a large enough exemption to spare the poorest. Hall and Rabushka would spare the first $16,000 in income from their proposed flat tax. Brown has rejected such an exemption, though he would allow deductions for rent, mortgage payments, and charitable contributions - less progressive than the Hall/Rabushka proposal, since rich folks can spend a lot on housing and charity.
Though Brown doesn't like to say who's responsible for his scheme, a Wall Street Journal article fingered Lee Newman, a retired real estate developer, as the culprit. When LBO mentioned his name to Tom Pier, Brown's deputy press secretary, Pier - who was unaware of the Journal's story the day after it ran - seemed surprised that Newman had been quoted publicly. The day after our conversation, Pier was quoted in the New York Times as saying that Newman wasn't authorized to speak for the campaign.
Brown proposes the VAT as a business tax that would replace the corporate profits tax. VATs are usually described as a kind of national sales tax, which is convenient but imprecise. Basically, it would tax businesses at every level of production according to the value added. If a firm buys $100 of supplies and has its workers transform the stuff into a product that it sells for $200, the value-added is $100. So at Brown's proposed 13% tax rate, the tax would be $13. Though Brown says that this tax would be paid by business and shareholders, the tax would in fact simply push up retail prices - like a sales tax, only invisible.
Honest VAT proponents, like Barron's editorialist Thomas G. Donlan, defend
the tax by saying that it punishes consumption and rewards savings and investment.
But poor and middle income people consume most of what they earn; according
to the Census Bureau, only the richest third of the population really has
any money left over after paying for necessities. So the "discourage
consumption/encourage savings" argument is yet another excuse for giving
our pampered rich yet another break.
According to Jerry, his scheme would be much simpler than the current system. Actually, there's nothing complex about a progressive income tax system; it requires nothing more sophisticated than a chart or a calculator. If you're going to hammer the special interests by abolishing loopholes, why not go one better and jack up the top rates? A VAT, though, would be quite complex and expensive to administer; far from being put out of business by the Brown scheme, a VAT would present our army of tax lawyers and bureaucrats with fresh fields to conquer.
Brown says his 13/13 plan would be "revenue neutral," that is, would raise as much money as the current system. According to an analysis by the Citizens for Tax Justice (CTJ), Jerry's scheme would actually come up about $200 billion short, requiring tax rates of 16.3/16.3 to match current revenues. [For important details and caveats, see page 3.] At those higher rates, the scheme would increase taxes on the bottom 60% of the population by an average of around $2,000, while extending a $66,400 break to the richest 1%. Modifications designed to spare the poor would bump up the rates even higher.
Consciously or not, Brown is relying on the public's suspicion that the current system isn't progressive - so why not just go for it and make law correspond to reality? But, hard as it is to believe, the current system is progressive - not progressive enough, but better than Jerry's proposal.
It's sad that Brown has ruined what could be a winning critique of the
present tax system - its corruption, favoritism, complexity, and unfairness
- with all the regressive nonsense. It would be wonderful to junk all the
writeoffs that favor the rich and to eliminate all the preferences that
keep lobbyists in business. But why attack the system's current skew only
to sacrifice the whole principle of progressive taxation? Could it be yet
another instance of his classic left-right dodge: a polemic against established
power on the symbolic level combined with a gift to the powerful on the
Brown's mad tax scheme is finally getting the (negative) attention it deserves. But another Brown economic proposal, also drawn from the reactionary chapbook, has drawn much less notice: enterprise zones (EZs). EZs are depressed, usually urban, areas singled out for special indulgence in the interests of economic development. The main indulgence is usually tax breaks, though easier regulations and suspension of the minimum wage laws are sometimes thrown in for good measure. Their highest-profile promoter at the moment is HUD Secretary Jack Kemp, who is probably one of the few non-racist members of the Bush administration and who probably cares more about helping poor people than most mainstream Democrats. But EZs won't do the trick.
It's impossible to get details on what Brown would do inside his EZs. Pier, his deputy press secretary, says that the idea is "out there," presumably meaning well-established rather than at the edge of the earth, so details are unimportant. (They also can alienate people - always a Brown concern.) When pressed, Pier said that tax breaks would probably be part of Brownian EZs, but not suspension of environmental or labor regulations, given his candidate's pro-labor sentiments.
But EZs are anti-labor at their heart. They don't create new jobs as much as they draw them away from unsanctified regions, where higher wages and tax rates prevail. As the Western Service Workers Association (WSWA) put it, such zones are the equivalent of establishing "Sowetos, USA." A 1989 General Accounting Office study cited by the WSWA found EZs expensive for governments to undertake, but ineffective in creating jobs. EZs move in precisely the wrong direction - away from the higher wages/higher skill strategy we should be pursuing and closer towards the Third Worldification of the U.S.
More broadly, the tax-break strategy of job creation, beloved of mayors,
governors, and presidential candidates, doesn't work. An exhaustive review
of forty years of studies published by The Council of State Governments
in 1989 showed that "there is no statistical evidence that business
incentives actually create jobs" [emphasis in original]. Far more important
than fiscal inducements are the productivity of a region's labor force,
its proximity to markets and suppliers, and quality-of-life issues. Insofar
as tax incentives reduce state and local revenues, leading to fiscal crises
and budget stringency, EZs and similar schemes can actually undermine a
region, by dumbing down the labor force and hollowing out local markets
while leaving the quality of life largely unchanged.
Though it should be self-evident, none of this Jerry-bashing should be construed as an endorsement of Bill Clinton. Actually, it's been kind of amusing to watch the political establishment discover the virtues of progressive taxation in their stop-Brown polemics. It's especially amusing to watch Clinton mouth that line, given CTJ's analysis of what happened to the Arkansas tax system during the Clinton years. According to CTJ's 1991 study of state tax systems, Arkansas taxed the poorest fifth of its citizens at a 11.5% rate in 1985; by 1991, they'd raised the rate to 13.2%, a rise of almost 15%. Clinton's sacred middle class got socked for a 17.5% rise, from 8.0% to 9.4%. The richest 1% of Arkansans saw their taxes rise almost imperceptibly, from 7.2% to 7.9%. And CTJ has blasted Clinton's federal business tax-break proposals, a detail the corporate press has forgotten when quoting their analysis of Brown's scheme.
Add to this Clinton's wretched labor and environmental records, his cynical decision to execute a lobotomized black prisoner, and his state's role in the contra arms supply effort, and it's hard to see how a Slick Willie administration would differ profoundly from what we're enduring now.
But how does an appreciation of Clinton's wretchedness lead to a decision to vote for Brown? The most serious economic problem facing the U.S. - leaving aside mainstream concerns about growth, innovation, and investment, which are means, not ends - is the polarization of incomes: the vast wealth of our wealthy, poverty unmatched anywhere in the First World, and the sinking fortunes of the middle class. A minimal strategy for addressing this pathology would be to establish a federal minimum income and a seriously progressive tax code.
But Brown speaks only of a "right" to a minimum income without saying how he'd get there, and his most substantial proposal is a tax scheme that only supply-siders like Jude Wanniski and Arthur Laffer could honestly love. Supporters praise his appointments, and some of them were fine, but this time around he has a press secretary who doesn't read the newspapers and economic advisers who can't count. Part of Brown is no doubt "better" in some way than any of Clinton, but what kind of tired and desperate politics is it that looks to a symbol juggler with a contradictory history, no discernible philosophy, and no links to any political organization other than the California Democratic party as some kind of savior?
This chart [forthcoming] shows the actual federal taxes paid (not the theoretical statutory rates paid by no one) as a percentage of income by income class in 1977, 1986, and 1992 (projected), as well as what would happen should Jerry Brown's proposals become law. Federal taxes include all types: income, social security, excise, and corporate. Estimates of the current and historical rates are from the Congressional Budget Office (CBO); estimates of Jerry's scheme come from the labor-funded Citizens for Tax Justice (CTJ). Chart labels on the horizontal axis refer to the top and bottom percentile of the income class - e.g., the first label, "1-20," refers to the 1st through the 20th percentile, or the poorest 20% of the population; "21-40," the second-poorest 20% of the population...up to "100," the 100th percentile, the richest 1% of the population. Brown's proposed reform would turn things completely upside down, however, transforming a moderately progressive system into a distinctly regressive one. Brown's repeal of the gift and inheritance taxes alone, notes Bill Seidman, a veteran Republican politico who is now CNBC's chief commentator, would be the "greatest gift to America's wealthy in years."
Deciding who pays the corporate profits tax is hard: do businesses eat the cost, or do they pass it along in the form of higher prices and lower wages? The CBO assumes that the burden is divided equally between capital and labor. But since a VAT is tacked on directly to the cost of every commodity before it leaves the factory gate, while a corporate income tax is only computed after the fact and spread across a firm's entire operations, and since a VAT applies fairly equally to all firms in an industry while the corporate income tax varies from company to company, a VAT is probably easier to pass along than a profits tax. The fact that corporate ideologues typically prefer VATs to profits taxes adds weight to this argument.
Alexander Cockburn, a pro-Brown columnist, and Robert Pollin, a semi-pro-Brown economist at the University of California-Riverside, and have questioned CTJ's estimates. Pollin says that $1.3 trillion in VAT exemptions - mainly for housing and health care - that are not part of Brown's proposal but were assumed by CTJ are largely responsible for their estimates that Brown's scheme comes up $200 billion short. CTJ says that these exemptions are common in existing and proposed VAT systems, and that it doesn't make sense to exempt housing from the flat income tax only to tax it anew under a VAT.
Though Brown's plan could hardly be more innocent of details, CTJ should have declared that they were supplying these exemptions on their own. (Brown himself has rejected modifications, common in European VATs, that would exempt life's necessities and tax luxuries at a higher rate.) If CTJ's self-supplied exemptions were restored, however, the Brown plan will be even more regressive than the estimates shown here. And unless you believe that VATs aren't passed on to consumers, which almost no economist regardless of ideological persuasion believes, you can't argue with the basic shape of the curve labeled "Brown" on the nearby graph.
Some Brownians profess doubts about the CBO estimates, but none has yet come up with anything more substantial than a cocked eyebrow. Brown's people promised a refutation, but none arrived. Maybe the CBO is all wet, maybe CTJ is all wet - but these are the best figures anyone has come up with as of press time. We welcome comment from readers, for or against, who might have a better grasp of the numbers than Brown, CTJ, or us.
After all the above articles were published, the Congressional Budget Office (CBO) analyzed the Brown tax proposals - without mentioning Brown by name - in a staff memorandum dated April 1992 ("Distributional Effects of Substituting A Flat-Rate Income Tax and A Value-Added Tax for Current Federal Income, Payroll, and Excise Taxes"). These numbers have to be regarded as about as definitive as can be expected; though Citizens for Tax Justice does excellent work, the CBO is far better staffed, and their models are as good as they get.
The plan is indisputably regressive. CBO makes this important point: "Families in the bottom one-fifth pay relatively little in combined income and payroll taxes compared with other families. Many low-income families actually receive subsidies from the income tax rather than pay taxes because of the earned income credit. [This has since been expanded significantly. - Ed.] Thus, low-income families would receive little tax relief from eliminating income and payroll taxes. In contrast, in any given year, many of these families spend much more than their annual income, financing such spending by borrowing or selling assets. These families would pay a significant portion of their income in value-added taxes."
Here is a summary of the estimated distributional effects by income quintile. The tax rates were set to assure no change in federal revenue (assuming no behavioral changes as a result of the radical reform of the tax code - a heroic assumption, but the only plausible one analysts can make).
income after tax effective tax rates* __________________ _________________________________ quintile avg % change 1992 actual after change change poorest $ 6,700 -21.7% 7.7% 27.7% +20.0 second 14,800 -11.0 15.2 24.5 + 9.3 third 23,100 - 5.3 19.1 23.4 + 4.3 fourth 32,400 - 1.3 21.7 22.7 + 1.0 richest 70,300 + 6.8 26.7 21.7 - 5.0 all 29,200 0.0 23.1 23.1 0.0 *Effective tax rates are the taxes people actually pay as a percentage of pretax income, in contrast with statutory rates, which are the numbers on the books that no one pays.
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