Last word on the flat tax: why most African Americans would lose big if the flat tax became a reality.

Every Presidential election cycle, the public braces for a radical assault on the tax structure. Four years ago, Jerry Brown propelled himself to the front of the Democratic pack by proposing a 13% flat tax rate on income. This primary season, the "new visionary" is Steve Forbes, who dramatically entered the Republican race, almost threatening to eclipse his competitors by promoting a similar proposal. Forbes proposes that all joint taxpayers with two children receive a $36,800 deduction and pay a flat rate of 17% on all remaining income. He would eliminate deductions for charitable giving, mortgage interest, state and local taxes and exempt items such as social security income, capital gains and dividends.

Supposedly, the outcome would be a system where taxes can be filed on the back of a postcard. The proposal also promises the elimination of the tax bureaucracy, lower rates for all, greater government revenues--because of fewer tax shelters--and more incentives to invest; above all, it promises a neutral impact on the budget deficit. Rep. Dick Armey (A-Texas) even promises that such a tax plan would help balance the budget because it would "unleash American talent, work and creativity as never before. Economic growth would soar."

Sounds great, doesn't it? But if this sounds familiar, it's because you've heard it all before. Not from Jerry Brown, but from a now discredited clan of supply-side economists. Whenever someone promises that all Americans can pay lower taxes and the government will get more revenue, they are saying that we can have our cake and eat it too. Some professional economists call this supply-side economics. Others call it what it is, voodoo economics.

If the goal is to increase savings, reduce the tax burden on the middle and lower classes and stimulate growth, then why not do just that by simplifying the current tax code? On the other hand, if the goal is to give the wealthy a monumental tax break, leave the middle and lower classes virtually no better-off and eliminate the incentive for supporting charitable causes that the government has abandoned, then the flat rate tax is right on the money.

Estimates are that the Forbes plan will net a family of four earning $300,000 a year about $35,000 less in tax liability and a family earning $75,000 annually about $1.500 less. But a family earning $20,000 would end up losing about $350 in tax rebates. In percentage terms, these numbers work out like this. The tax burden for the $300,000 a year family will decrease by 79%, or by 11% of gross income. The tax burden for the $75,000 a year family will decrease by 20%, or by 2% of gross annual earnings. On the other hand, families earning $20,000 will lose a rebate that is equivalent to almost 2% of their income.

The winners and losers are very clear, or in black and white, so to speak. Most African American families are closer to the $20,000-a-year income level and therefore stand to lose.

A flat tax will cause a radical change in the tax structure. Yet it's not clear that it will achieve any of the desired objectives. One thing is certain, the budget cannot be brought into balance if everyone pays less taxes. A flat rate tax sounds good, but we must resist the urge to embrace this plan just because it seems simple. When someone proposes this newest version of voodoo economics, we must reply, "There's no such thing as a free lunch!"

FORBES FLAT TAX

ITEM                         ADJUSTED GROSS INCOME
                             $50,000    $60,000    $75,000

Wages & salaries              48,980     58,766     73,593
Pension &
   retirement benefits             0          0          0
Total compensation            48,980     58,766     73,593
Personal exemption
   & allowances (*)           31,750     31,750     31,750
Taxable income                17,230     27,016     41,843
Tax (at 17%)(**)               2,929      4,593      7,113
Tax (at 23%)(***)              3,963      6,214      9,624
Earned income
   tax credit                      0          0          0

Tax after earned
   income tax credit
   (at 17%)                    2,929      4,593      7,113
Tax after earned
   income tax credit
   (at 23%)                    3,963      6,214      9,624

ITEM                         ADJUSTED GROSS INCOME
                             $100,000   $200,000   $300,000

Wages & salaries               97,348    192,896    282,197
Pension &
   retirement benefits              0          0          0
Total compensation             97,348    192,896    282,197
Personal exemption
   & allowances (*)            31,750     31,750     31,750
Taxable income                 65,598    161,146    250,447
Tax (at 17%)(**)               11,152     27,395     42,576
Tax (at 23%)(***)              15,087     37,064     57,603
Earned income
   tax credit                       0          0          0

Tax after earned
   income tax credit
   (at 17%)                    11,152      27,395     42,576
Tax after earned
   income tax credit
   (at 23%)                    15,087      37,064     57,603

(*) At 1994 levels. Forbes campaign advisors stated that the deduction would be $36,000 in 1998.

(**) The Forbes proposal indicates that the tax rate will be 17%.

(***) Treasury has estimated that a plan similar to the Forbes flat tax would require a revenue-neutral rate of 23%.

Thomas D. Boston, a professor of economics at the Georgia Institute of Technology, is a member of the B.E. Board of Economists