COLUMN LEFT / ROBERT POLLIN : Maybe Not a Flat Tax, but a Fair Tax : Jerry Brown’s proposal had flaws, but its transparency and simplicity make it easy to fix. Now, it could rescue our cities.

One crippling feature of our sound-bite political culture is the speed with which issues rise and fall in the media’s consciousness.

I have been immunized against this normal cycle during the recent political season because, about six weeks ago, Edmund G. (Jerry) Brown asked me to re-examine his ideas on tax reform and the chorus of criticism against them. And so, while the verdict in the Rodney King beating case and its aftermath finally focused the country’s political conversation on the problems of racism and urban poverty, tax reform remains on my desk.

The result is that I’ve been led to observe an important connection between the hot issues of last month and this month that have been lost from the media’s view. It is that by closing unfair tax advantages along the lines of Brown’s proposal, we can easily raise the funds necessary to finance a serious program of urban revival.

Recall that the stated aim of Brown’s proposal was to drastically simplify the tax code, while increasing fairness and not enlarging the federal deficit.

Brown sought to accomplish these goals by suggesting the abolition of all existing federal taxes other than the personal income tax, which would be retained at a flat 13% rate. He would also add a 13% value-added tax on business. Despite the flat rates, Brown’s plan aimed to reduce the relative tax burdens for the poor and middle class relative to the rich through a few simple measures: abolishing taxes such as the payroll tax and gasoline tax that fall disproportionately on the less well-off; allowing renters, who generally have lower incomes than homeowners, to be given equal treatment in the tax code, and eliminating almost entirely the current system of exclusions, exemptions, deductions and credits--the whole system of loopholes, which for the current fiscal year amount to $393 billion, nearly equal to the federal deficit itself.

As initially drafted, the former California governor’s proposal did have significant flaws. In particular, the measures Brown proposed to produce lighter tax burdens for the poor and middle class in relation to the wealthy were inadequate. But the beauty of Brown’s approach is that, unlike the present labyrinthine system, its errors are evident and therefore correctable through direct, transparent measures.

Brown’s central idea is to eliminate the tax loopholes that favor the wealthy and the cabal of politicians, accountants, tax lawyers and lobbyists who feed off them. And here is where the connection to the crisis in our cities emerges.

Even after the trial verdict and Los Angeles riots, we hear from Democrats and Republicans alike that there is precious little money in the federal budget to finance a serious urban redevelopment initiative, such as the $35-billion program proposed by the U.S. Conference of Mayors and supported by Brown.

But consider only one item, perhaps the most popular, among the hundreds of exemptions, deductions, credits and exclusions: the tax deductibility of mortgage interest on owner-occupied homes. This is almost universally embraced as necessary to promote home ownership and stable middle-class living standards. In fact, it is a massive subsidy for the well-to-do.

A 1991 study in the National Tax Journal by James Follian and David Ling found that about $80 billion is being lost annually to the federal Treasury through mortgage-interest deductions. The homeless, renters, even homeowners who do not itemize their tax deductions don’t share one penny of this subsidy, the magnitude of which far exceeds all other federal housing programs combined.

Among the homeowners who do itemize, the housing deduction is equivalent to an average subsidy of $6,680 for households with incomes over $100,000 but only $444 for households with incomes between $15,000 and $30,000. The reason is simple: The higher your tax bracket and the more you spend on housing, the more you can deduct. But what politician would be willing to be photographed handing a $6,680 check to a Beverly Hills movie producer to finance his new Jacuzzi, while 2 million Americans live in streets, parks, alleys and subway stations?

If the mortgage-interest subsidy were cut by half for just one year, this alone could finance all of the mayors’ proposal and leave $5 billion to spare. Isn’t that incentive enough to think about tax reform again?