Business

Giuliani Cozing Up To Flat Tax?

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Steve Forbes gives Rudy his backing…which doesn’t mean all that much. What’s interesting is that Rudy seems to be flirting with Forbes’ flat tax idea when he had previously condemned it.

From NY Times:

Rudolph W. Giuliani accepted the endorsement of Steve Forbes yesterday and embraced Mr. Forbes’s signature issue, saying he liked the idea of a flat tax � something Mr. Giuliani denounced when Mr. Forbes was running for president.

If there were no federal income tax, “maybe I’d suggest not doing it at all, but if we were going to do it, a flat tax would make a lot of sense,� Mr. Giuliani, who is seeking the Republican presidential nomination, said yesterday, standing beside Mr. Forbes at the Nasdaq MarketSite in Times Square in New York. But he said it was not clear whether dissolving the current system, so ingrained in the economy, would be feasible.

This is what Rudy said in the past…

In 1996, when Mr. Forbes first ran for president, Mr. Giuliani, then the mayor of New York City, disparaged a flat tax in general and Mr. Forbes’s plan in particular. The Forbes plan called for a single tax rate above a certain income, instead of several rates based on income. Mr. Giuliani said that a central part of the proposal, eliminating deductions, would hurt taxpayers in urban areas and reduce tax revenues for populous cities and states.

So there’s that.

Personally, I don’t think Forbes’ flat tax wouldn’t work. It favors the rich too much.

However, some writers for Forbes’ magazine proposed a better flat tax plan a couple years ago and it may be something that Republicans and Democrats alike should take a look at.

I would offer Americans an even lower flat tax rate–14% as opposed to 17%–and at the same time do more to help low-income people. Boston University economist Laurence Kotlikoff and I have put together a plan that works in the following way.

First we’d get rid of the across-the-board $9,000-per-person exemption in the Forbes plan. Why should billionaires like Bill Gates get an exemption? Forbes is giving too much money away to rich people. We’d save that exemption money and give it instead, in the form of a rebate, to the bottom third of earners, those who bring home roughly less than $25,000 for a family of four.

Second, Forbes ignores the 12.4% Social Security payroll tax (split between employer and employee). Currently, income over $90,000 a year is not subject to the tax. We don’t think it’s fair that a $50,000-a-year autoworker has to pay payroll taxes on all his income while a million-dollar-a-year auto executive does not. Under our proposal all wages would face the same income and payroll tax rates.

Thoughts?