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February 19, 1996 12:00 AM

FLAT TAX RATE CATCHY WITH THESE PROFS

Barry B. Burr
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    William F. Sharpe, Nobel laureate in economics and professor of finance at Stanford University in California, finds the proposal for a flat tax appealing.

    "I'm a lifelong Democrat with a capital 'D,'" he noted in response to an inquiry about the presidential campaign.

    But, he pointed out, "I like the flat tax."

    Like Mr. Sharpe, Jeremy J. Siegel and Robert A. Haugen - who also have close ties to the pension fund and investment management communities - also are attracted to the flat-tax proposal, which Steve Forbes has used to propel his campaign for the Republican presidential nomination. Among the key features of a flat tax, they point out, are its:

    Spur to saving and investment, promoting economic growth;

    Move to simplification, cutting tax avoidance and the cost of preparing returns; and

    Progressiveness. Even Mr. Sharpe acknowledges some progressivity in the tax.

    "I have trouble it's not progressive after the exemptions," Mr. Sharpe said. "But it's at least an attempt to be consumption-based. A lot of economists of almost all persuasions like a consumption-based tax," which, he said, is what the flat tax is.

    "The flat tax would encourage savings and investment and it appeals to reasonable views of fairness and equity."

    Mr. Siegel, a professor who teaches finance at the Wharton School, University of Pennsylvania, said: "I'm very attracted to a flat tax and the notion of simplification.

    "The term 'flat tax' is a misnomer," he added. "It's really a very progressive tax around the middle income. It's not true everyone pays the same rate." Under the proposal, he pointed out a family of four with a $50,000 income from working wages would receive a $36,000 exemption and pay the 17% flat tax on only $14,000. As a result, the family would pay only $2,380, or 4.7%, of its income in tax, rather than 17%.

    "We have a high tax on saving in this country," he said. "It's no wonder saving is so little when taxes are so high."

    "The flat tax has a chance" to be enacted, he added. "I think we have to move to consumption taxes. I think you could go to a flat tax of less than 20%. I can still see us taxing interest and dividends, because at that (low) rate it is less burdensome than the current rate of about 40%. We have to do serious work on tax simplification to get rid of the loopholes. Have you ever tried figuring your capital gains on mutual funds? I'm a finance professor and it's complicated."

    Mr. Forbes, he said, "has got a lot of good ideas," including welfare reform. "He's shaking up the establishment. He's a smart guy. He's a fresh face. I find him attractive. I plan to vote for him in Pennsylvania."

    Mr. Haugen, professor of finance at the University of California at Irvine, said he personally would have preferred Colin Powell. But among the existing candidates, "the one closest to my political ideology as a civil libertarian is Steve Forbes. I like his flat tax."

    "It would have a huge impact on the financial markets," he added, noting its big impact in boosting saving and investment.

    "I think Steve Forbes made a mistake by withholding his income-tax return. I don't think he pays much in taxes. But he could have used it to his advantage to show how bad the existing system is and the need for reform, that even someone with his income can get away with paying little in taxes."

    "I think we spend too much time just doing our income taxes and a lot of time trying to avoid income taxes," Mr. Haugen added. "The time and energy we spend is a travesty."

    Mr. Haugen said he could vote for Mr. Forbes. "I'm an ABC guy: anybody but Clinton."

    Mr. Sharpe, ever a Democrat, said he continues to support the president but won't get involved in the re-election effort as he did at the precinct level during the 1992 campaign.

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