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CNN SATURDAY MORNING NEWS
Interview with Robert Shapiro, Dan Mitchell
Aired August 2, 2003 - 09:38 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(BEGIN VIDEO CLIPS)
UNIDENTIFIED FEMALE: Seventeen percent is, you know, quite a bit, a high amount to pay. So in that sense, it's not fair. But it's a great idea to have the same amount, you know, of tax to be paid.
UNIDENTIFIED MALE: I like the flat tax. Makes it a lot easier. People pay according to their income, less deductions. Makes it a lot simpler.
(END VIDEO CLIPS)
JOHN VAUSE, CNN ANCHOR: The IRS. It's the agency Americans hate and fear, but I really love the IRS. I think they're a bunch of really good, hard-working people.
Most people, though, wish the IRS would just go away. Well, that might happen. There's a push to replace the income tax with a flat tax. So let's have a debate.
Robert Shapiro is with the Progressive Policy Institute, and Dan Mitchell is with the Heritage Foundation.
And let's start with Mr. Mitchell, because I think that you're in favor of a flat tax. So let's hear it. Why should there be a flat tax?
DAN MITCHELL, HERITAGE FOUNDATION: We should have a flat tax, because we want a system that's good for the economy, that treats people fairly, and gets the IRS out of our lives. We know it works because countries like Hong Kong have had one for a long time, and even, irony of ironies, a lot of countries in the former Soviet empire have flat taxes, including Russia, Ukraine, Lithuania, Estonia. Slovakia is just putting one in.
It's sleeping the world. It's time America has a flat tax too.
VAUSE: Stellar examples of economies there, Russia, Ukraine, Slovakia. Why should the world's most -- well, the biggest economy, the most sophisticated economy, take on a flat tax like those economic basket cases?
MITCHELL: Well, I think the reason we want a flat tax is because the evidence from Russia, in just two and half years of existence, is that the flat tax has done a great job. The government's collecting more revenue, because people have very little incentive to evade or avoid taxes. The economy is growing faster. But I'll admit, that's only two years of evidence.
Let's look at Hong Kong, the world's fastest-growing economy over the last 50 years, three-quarters of the tax burden is paid by the top 10 percent. And so it should even appeal to some of my class-warfare friends on the left, who worry that a flat tax somehow won't be fair, because everyone's being treated the same.
VAUSE: Robert Shapiro, your answer to all this? Is this still like flat-earth policy?
ROBERT SHAPIRO, PROGRESSIVE POLICY INSTITUTE: Absolutely. This is, you know, this is like the "American Pie" movies. It's a bad idea that keeps on coming back and gets worse every time.
You know, this time, we're supposed to follow Russia, a country which can barely collect any revenues, and is widely perceived to be, as you said, an economic basket case.
Look, the fact is, this idea has been around for a long time. It doesn't work. The reason it doesn't work is that it shifts the tax burden dramatically from the very top to the middle class. They say you can do it with a 17 percent rate. Well, you can do it with a 17 percent rate, if you want to add a couple hundred billion dollars more to the deficit. In order to make deficit neutral, we're talking 21, 22 percent.
And then, if you start adding back deductions that people like, like the mortgage interest deduction, it goes even higher.
VAUSE: Well, (UNINTELLIGIBLE) Robert did -- sorry. Robert, Dan did raise a good point, the fact that this is working in Russia. Maybe you can explain to us why it's working in Russia?
SHAPIRO: Well, one of the reasons for -- one of the reasons it works in Russia is that Russia has almost no competent system for actually collecting revenues. And so the flat tax, it is simpler, in the sense that it removes deductions from the personal tax. But there's really simply no logical transition from current-day Russia to the world's most advanced and complex economy, the United States.
VAUSE: And Dan, what do you say to that?
MITCHELL: Well, I'm actually glad that Robert said something vaguely nice about the flat tax. We should stop the interview right now.
But I want to raise another issue that I think is equally important. The current tax system is the number-one source of political corruption in Washington. If you get rid of all of the deductions, the credits, the preferences, the shelters, the loopholes, and replace the entire tax code with two postcard-sized forms, think of how much cleaner our political system would be.
You wouldn't have businesses going up to Capitol Hill looking for special deals. Instead, they'd be concentrating on producing goods and services that consumers want. Politicians would be out of the business of exchanging loopholes for campaign cash.
A flat tax is good for the economy, but I think the moral argument for the flat tax is perhaps the strongest thing it has going for it.
VAUSE: The moral argument? Well, Robert, how much...
SHAPIRO: The moral argument here is that the top 1 percent, who own 48 percent of all of the financial assets in the country and derive more than 50 percent of their income from capital assets, should pay no tax on that, while ordinary working people pick up the slack from all the revenues lost from exempting half the income of the top 1 percent of the country.
MITCHELL: Robert, we're simply only going to tax income one time. Don't you think that's fair? Should people be double-taxed because they save or invest or because they die? We need to get rid of double taxation, because we're literally destroying the seed corn, the capital that's necessary to create better jobs and higher wages.
VAUSE: Well, let's cut to the bottom line here, gentlemen. The bottom line in all of this, let's start with Dan, would a middle- income owner, or a low- to a middle-income earner, be better off under a 17 percent tax rate, compared to how they are today?
MITCHELL: Well, here's what I would say to your viewers. Don't believe me, but don't believe my good friend Robert either. Get the postcard...
VAUSE: Who do we believe?
MITCHELL: ... two -- two -- Take the postcard, fill it out. It'll take you two minutes. Compare it to the 1040 monstrosity you sent in to the IRS in April, and see whether you pay more. Ninety percent of people, I suspect, will pay less. Now, that's a tax cut, that's a tax cut. That gets Robert all upset. But I think that's a fringe benefit of the flat tax.
VAUSE: Robert, will they be better off or worse off?
SHAPIRO: Of course, they'll be worse off. And the economy will be worse off.
If you think it's in your interests to lose your mortgage interest deduction, to lose your charitable deduction, to lose all deductions for sending your kids to college, and instead pay a 22 percent tax, and, on top of that, the payroll tax, so you're paying 37 percent of your income to the federal government, while rich people, who don't work but live off of millions of dollars in dividends and interest, pay no tax, then you should support the flat tax.
VAUSE: But you must, you must admit, Robert, that this is seductive in its simplicity.
SHAPIRO: Well, in fact, the notion of eliminating a lot of deductions is a good idea. But the fact is that pairing that with a single tax rate and exempting all interest in dividends income, while people who have to work for a living have to pay tax on their incomes, is a very bad and regressive idea.
VAUSE: OK, OK, we got to wrap it up. I'm sorry, Dan, I wanted to give you the last word, but we ran out of time, so next time.
OK, Robert Shapiro and Dan Mitchell...
MITCHELL: Pleasure to be here.
VAUSE: ... (UNINTELLIGIBLE) joining us on the issue of the flat tax.
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