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A flat tax may get a test drive

Recently, I went back to see my old high school in Washington, D.C. In those days (I graduated in 1967), it was called Western High School, and was integrated de facto as well as de jure, with a roughly even balance of black and white students. The building, nearly a century old, was a little run-down, and we had to scrape up money from our parents to keep the school newspaper going, but you could get an education there.

We went to Harvard, Stanford, Tufts, the service academies and other good schools. The middle-class white and black kids were in the same school activities, behaved equally badly at the same parties, and believed in the same government-issue Great Society politics. We all knew Marion Barry, then a local hustler on the rise who was just hitching a ride on the politics game.

Western is now the Duke Ellington School of the Arts. Much has been added, and much taken away. The most telling sign, I decided, were the clocks in the classrooms. They're the same clocks we had, and they've all stopped. The people in charge of the school have spent thousands of dollars on an elaborate closed-circuit TV system to tell the students about the week's special events, but didn't think some fraction of that should have been spent on teaching the kids to show up on time. And, indeed, the students wander around pretty aimlessly, I suppose waiting for the producers of Fame II to sign them up.

They're being cheated, of course, as they will find out after some very cruel lessons. So is everyone else living in the District of Columbia. The city, now in receivership for the second time in its history (the first occasion was in the 1870s), is a poster child for a 12-step program to kick Government Abuse.

A decade ago, D.C. seemed to be on the way to becoming, if not a state, then the political equal of the states. Now the city is being run by what is universally called the control board _ formally, The District of Columbia Financial Responsibility and Management Assistance Authority. It is slowly attacking the most egregious fraud and mismanagement. Its charter is to balance the budget in the next three years. It may succeed, if the tax base doesn't shrink any faster than its present rate.

But while the control board may give comfort to the holders of D.C.'s $3.5-billion of bonded debt, it cannot revive the city. Only a restored civil society with a middle class anxious to defend its families and property can do that.

Most of the people now living in Washington are welfare recipients, D.C. government workers, or criminals and their dependents. They are all opposed to the reforms needed to save the city.

According to the most recent Washington Post poll, conducted between May 16 and 19, Mayor Marion Barry has a "good" or "excellent" rating of 52 percent. When asked if Barry was "trying realistically to deal with the city's problems" 70 percent said he was. Not that there isn't some dissent: In an earlier Post poll, conducted in February, 60 percent of D.C. residents said that Barry's proposed cutbacks in the unbelievably bloated city government are a "bad idea."

What can you say? Most of the people, white, black or whatever, who don't take the majority line have left town. They don't want to pay the taxes for non-existent services, and are appalled by the schools and terrified of the crime. In 1970 there were 757,000 residents; today there are 540,000.

Now if nature were to take its course, the place would soon crumble, be abandoned by its surviving inhabitants, and then be excavated by puzzled archaeologists some centuries hence. It has happened before. But D.C. was formed by the federal government, which is constitutionally committed to the place; it cannot strike camp as a private employer or property owner might.

Until now, under both Democratic and Republican administrations and Congresses, the response to problems in the district has been to fund another program or two. But in the past year, a tectonic plate has shifted. Eleanor Holmes Norton, the non-voting D.C. delegate to Congress and a member of the city's black political elite, has put forward a bill to cut federal taxes on residents' local income to a flat 15 percent, with exemptions of $15,000 for single filers and $30,000 for joint filers. Last year, district residents paid about $1.6-billion in federal taxes; Mrs. Norton's bill would cut that by an estimated $750-million.

There is a precedent for this sort of tax break. Guam, American Samoa and Puerto Rico also have limited self-government and representation in Washington, and their residents pay no federal income taxes.

There is a popular perception in the rest of the country that Washington is a nest of ill-gotten wealth and privilege. Privilege? Yes. Ill-gotten? In many cases. But wealth? Last year, there were only 4,300-odd taxpayers in the district who earned $200,000 or more. What if their tax liability were to be cut by more than a third? Think some of their friends might move into town? As for the core middle class, there were only about 75,000 taxpayers in the district with family incomes between $30,000 and $75,000. If the better-off are the ones who might start new enterprises, the people in the middle are the ones who will harass the school board, the police and the City Council into delivering real services.

To add to the lure, the Norton plan would retain the mortgage-interest deduction and the charitable deductions. The frosting: There would be no capital-gains tax on investments in D.C. by D.C. residents. The Norton bill would be the camel's nose in the tent for a national flat tax. And it would help transform the terms of debate in the black middle class, which now sees itself as dependent on government jobs and affirmative action.

Of course Mrs. Norton doesn't represent herself as a born-again conservative. "I am a hard-core Democrat and a hard-core liberal," she says. She supports the National Education Association in its unbending opposition to a voucher program for the district's schools, and says of her proposal: "I am not calling this a flat tax because that suggests it is not progressive. I am calling it a uniform tax."

Whatever. She is realistic about the essential problem of the district. "The D.C. government has an attitude. Nothing will work unless it is reformed agency by agency, which is where the waste is. The police need to be made more effective. The control board's plan to cut 10,000 jobs (about a quarter of the city payroll) is a good one."

There are about 15,000 bills introduced in Congress every year, and only a small fraction see the light of day. The district is a pretty unpopular cause in Congress. Even when Democrats are in control, key legislation concerning the city tends to pass by narrow margins.

Even in this basically hostile climate, a surprisingly high level of support has built up for the D.C. flat tax. "The speaker is interested in it," says Mrs. Norton, "and he's sent a memo to Bill Archer at Ways and Means asking how it can be moved along. Victor Fazio, the chair of the Democratic caucus, has become a co-sponsor." Before leaving the Senate, Bob Dole had offered to get the bill through the upper chamber if it passed the House _ a good omen.

It is not, however, a lock. Republican House members, particularly the newer ones, don't like to think about Washington, and tend to defer to the two or three people in the caucus who have the principal responsibility for D.C. affairs. Their support for a D.C. flat tax is conditioned on seeing reforms in the city government.

Tom Davis, R-Va., is the chairman of the House District Affairs Committee. He is a freshman from neighboring Fairfax County, where he became head of the county government while working as an executive with a technology company. "This city still has an entitlement/victim mentality," he sighs. "And most of the crimes are being committed against the people who are fighting the changes we're trying to make in the justice system."

For Davis's constituents, D.C. is a local issue, which tends to come down to its contribution to the region's crime rate. "Every other jurisdiction is moving away from parole, because 60 percent of crimes are committed by 3 percent of the prisoners. But parole in D.C. is almost automatic, and Barry got a lot of support in the last election by making a play for the votes of offenders' families and friends." There are 1{ times as many prisoners now in the district's Lorton Reformatory as there are taxpayers in the $200,000-and-up group.

"At a minimum we want to see regulatory reform so that the city would have the welcome mat out for business," Davis says. "The problem now is that the district's reputation is bringing down the whole region."

In the end, Davis tends to support the bill. "I think it's something we can do. But I want to see some other changes, not just in criminal justice, but in cutting waste and destructive regulations, along with some tax reform by the city."

The flat tax also would need to have the support of James T. Walsh, R-N.Y., a former phone-company executive who represents Syracuse. Walsh was the City Council president of Syracuse, and is able to make embarrassing comparisons with his home town. "The city is only about three times the size of Syracuse, which has a budget of $330-million. Even if you triple that, and add in the corrections and social services the state provides in New York, you don't come anywhere near the $5-billion the district spends. In Syracuse the city council has a staff of three. Here it's over 80. When they announce cuts in spending, those are only announcements."

Walsh is a classic American can-do type in a can't-do place, and he is not happy with his part-time home. "Of course I leave my family at home in Syracuse. Why would I live here?" Even so, he'll support the flat tax if certain conditions are met. "I am willing to do this, but not for the heck of it. I want to see some behavioral changes here, including a balanced budget."

We can't move the government to a less expensive facility in Plano, Texas, or Southfield, Mich., or any of the other places corporate America has fled to in recent decades. D.C. needs a jump start, and the flat tax would do it. No, it's not entirely fair to reward the city before the rest of the country, but it could provide a testing ground for a tax-and-spend-less philosophy that could be transplanted to the rest of the country.

John Dizard, who writes National Review's Gekko page, has spent many years in Washington, D.C. This article originally appeared in National Review.