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Recent Editorials |
Rudy and the Flat Taxby Ryan Sager
Rudy Giuliani's endorsement by Steve Forbes yesterday, and his recent comments on taxes in a number of forums, have brought some attention to the former mayor's record on the issue. Today, the Sun's editorial page even dubbed Rudy "Supply-Side Giuliani." Clouding this picture somewhat, however, is the fact that Mr. Giuliani vehemently opposed the flat tax back in 1996, when Mr. Forbes was pushing it. "It [the flat tax] would really be a disaster and it's totally inconsistent with the movement of the Republican Congress toward giving more responsibility to state and local government," Mr. Giuliani said on CNN's "Capital Gang," on March 9, 1996. So, does this mean Mr. Giuliani has flip flopped? Well, he had complex reasons for opposing it in 1996, and he hasn't endorsed it now — so, at the simplest level, no. But what was his objection back in 1996? Well, here's that quote above in full: No, I think it [flat tax] would be a terrible mistake for urban areas, for big states. We depend on the deductibility of state and local taxation and in a time in which the federal government is turning over more responsibility to state and local governments, which they're doing, whether it's the Clinton approach or the Republican approach in the House, really it's just a question of how fast it's done, you can't be pulling away some of our economic basis, which rests with state and local taxation and that would be true of any of the big cities, any of the big states. It would really be a disaster and it's totally inconsistent with the movement of the Republican Congress toward giving more responsibility to state and local government.In bold above is what I think is the key passage. Essentially, Mr. Giuliani is saying that a flat tax would reduce the states' tax revenues; if you couldn't deduct state and local taxes all of a sudden, states and cities such as New York would have to cut taxes to compensate; and that would reduce states' and cities' abilities to provide services. At a time when Republicans were talking about pushing more responsibility to the states, this wouldn't make a lot of sense. Is any of the above incompatible with what he's saying now? Here's Mr. Giuliani on CNBC's "Kudlow & Company," Monday: I think it [the federal tax code] needs a massive simplification. If we were doing income tax for the first time, in other words, we were starting off new back at the beginning of the last century, then probably we should go with a--we probably should've gone with a flat tax, or maybe two levels of tax, but really simple. Our economy has kind of grown up now on depreciation and deductions and industries have grown up around that, and so I don't know exactly how much you can simplify it, but you sure have to make a stab at it. And I thought Reagan got it right. I thought that what Reagan did was--I kind of think of it as, like, cleaning out the forest. You know, you got--the tax code was this big, he got it down to a simple code, reduced the top rates. Kind of leveled out the rates a little so there weren't as many. The tax code needs a simplification, in addition to lowering your sum taxes.Here, again, Mr. Giuliani highlights the difficulties of moving to a flat-tax-like system, but generally endorses "simplification." So, there's a lot more to be learned about Mr. Giuliani's views and plans on taxes. His emphasis will certainly be different as a presidential candidate than as a mayor with a city budget to keep in order. But I don't think anyone can call this a particularly big shift — certainly not a flip flop.
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