COLUMN RIGHT / PAUL CRAIG ROBERTS : The Best Tax Plan Since Kemp : Who’d have guessed that Brown would be the growth candidate?

In November, 1988, after Jack Kemp lost the Republican nomination to George Bush, he was advised that his pro-growth policies had no future in the Republican Party. The reason was simple. The pro-business Republican Establishment draws the line at entrepreneurs--called “greedy hotshots” by Treasury Secretary Nicholas Brady--and dislikes economic booms, because a good economy raises interest rates and hurts the value of bond portfolios.

Absorbed in this preoccupation with interest rates, President Bush was surprised to find this year’s primary voters upset with the economy. He had not heard a single criticism from his Establishment pals of the three-year no-go economy he had crafted.

Kemp is more a leader of Reagan Democrats than of Republicans, and was told that his good standing with minorities gave him a better shot at uniting the Democrats on a pro-growth opportunity agenda. But he was dazzled by mea culpas from George Bush and James A. Baker III that they had seen the supply-side light and become converts. Kemp decided to be part of Bush’s success rather than prepare for Bush’s failure.

Now Jerry Brown has come along, reaching for Kemp’s pro-growth mantle. Brown, who bested scandal-plagued Bill and Hillary Clinton in the Connecticut primary, is calling for the best pro-growth tax policy since Treasury Secretary William E. Simon issued the Reagan Administration’s “Blueprints for Basic Tax Reform” in January, 1977. Brown wants a 13% flat tax on personal income, with deductions only for charity, mortgage interest payments and rent. He would abolish the Social Security employment tax, the corporate income tax, capital gains and estate taxes. In their place would be a 13% value added tax, or VAT.

Brown’s scheme is being attacked as unfair by the left wing of his party. It would be unfair only to the government bureaucrats who run the welfare, housing and entitlement agencies. The increase in private-sector jobs and wealth would wreck their careers.

However, it is not unfair to anyone else. A flat-rate income tax treats all taxpayers equally. Unlike our progressive tax, it does not penalize success and reward failure. A flat tax has none of the perverse incentives of our current tax system. Americans don’t approve of religious, race, gender or age discrimination, so how can we justify discrimination on the basis of income?

“Tax fairness” has become a left-wing issue. The concept is so narrowly and misleadingly defined that if its proponents, such as Citizens for Tax Justice, won the day, there would be no jobs for anyone. Ever since there has been an income tax, capital income has been subject to multiple taxation, and the rich have paid a disproportionate share of the income tax. However, “tax justice” is not satisfied until the rich shoulder the entire burden.

This bashing of capital conflicts with the creation of income and wealth and, therefore, with job creation and productivity growth. The primary beneficiaries of the growth of capital are employees, because it raises their productivity and pay.

However, the unions don’t see it this way. To them, it is solely an issue of income distribution. Fairness is taxing capital and not labor, and the more this is done, the more justice they see.

The charge that a 13% flat tax would raise income taxes on the poor is untrue. It overlooks that the Social Security tax, abolished in Brown’s plan, takes 15.3% of wage income before the 15% bottom income-tax bracket takes a slice. Moreover, Brown gives the poor the benefit of the mortgage interest deduction by allowing them to deduct rent. If necessary, his plan could be adjusted to tax income only above a basic threshold.

A VAT is a tax on consumption, not on employment or on the capital that creates jobs. It can be avoided by saving, which everyone agrees we need. Since the rich consume more, they would undoubtedly pay a larger share of the VAT.

Brown would instill more confidence in his revolutionary posture if he showed an understanding that the American left is a large part of the Establishment that he rails against. And he would have done wonders for his credibility if he had announced that he would offer the vice presidential slot to Jack Kemp. That would have sent the clear message that he intended to unite the pro-growth forces against Washington. What kind of a revolutionary would pick for his running mate Jesse Jackson, a leader of an ossified special interest lobby that believes the future of minorities depends on quotas?