John Lakian & the Armey Flat Tax Jude Wanniski September 6, 1994

Among the most interesting political races of 1994 is the GOP September 20 primary in Massachusetts, which pits Mitt Romney, a wealthy management consultant and son of former Michigan Gov. George Romney, against John Lakian, an investment banker (and Polyconomics client for six years). Romney, the organization's candidate, is favored to win for the race against Sen. Edward M. Kennedy in November. Lakian's campaign was dead in the water until early August when he made the 17% flat tax, designed by Rep. Dick Armey [D-Tex], the cutting-edge of his issues campaign. Since then, he has spent almost $500,000 of his own money on radio and TV embracing the flat tax and has appeared on about 80 radio and cable talk shows explaining the idea -- which Romney argues will cost too much money and The Boston Globe insists will only enrich the wealthy. The Lakian campaign is clearly in motion, though, as he has become identified with dramatic and fundamental change. There are a number of other GOP congressional candidates running on the Armey flat tax, but none from as far behind as Lakian. If he wins, Armey tells me, it will really put the flat tax on the map.

Insofar as supply-siders are committed to the Armey plan as they were to the Kemp-Roth tax cuts in 1978, and determined to get the flat tax into the 1996 GOP platform, the race is the equivalent of the 1978 Republican primary in New Jersey, when unknown Jeff Bell rode Kemp-Roth to defeat five-term U.S. Senator Clifford Case. Bell subsequently lost the general election to Bill Bradley, who hastily proposed his own tax cuts (which eventually transmogrified into the 1986 tax reform). Yet the Bell campaign energized the 1980 candidacy of Ronald Reagan, who rode Kemp-Roth into the Oval Office. I spent a day with Lakian in Boston, Lowell, Andover, and Lawrence, Mass. several days ago and found myself thoroughly impressed by his enthusiasm and the enthusiasm the flat tax idea is generating. Although I've known him since he helped raise about $300,000 for Jack Kemp in his 1988 presidential bid, I've never before seen him on the political move, under pressure.

Who is he? Born in Worcester in 1943, Lakian was anything but a silver-spoon baby. When he was two, his father died in a car crash, believed to have been caused by injuries he suffered in WWII, and Lakian was raised by his mother. After graduating Boston University and working briefly in the Boston business world, he enlisted in the Army in 1966, and as a junior combat officer in Vietnam received two Bronze stars, one with a "V" for valor. He knows political gunfire too. In 1982, he ran for the GOP gubernatorial nomination, his campaign collapsing when the Boston Globe accused him of falsifying his war record by claiming a "battlefield promotion." It was a line written by an aide in a mimeograph bio that was never sent out, as Lakian caught the error; he was promoted to first lieutenant from second, but not on the battlefield. The Globe plays hardball, and while it now seems to concede that Lakian had no need to gild the lily, the '82 cloud still hovers over him. Instead of souring him for good, Lakian decided to enter the political wars again after making his fortune during the Reagan boom years. 

What are his chances of winning against Romney? Until he latched onto the flat tax, it had been believed the race was already decided in Romney's favor. Romney won the endorsement of the GOP convention in April largely on the strength of his family name and the assumption it would be easier for him to beat Teddy in November, given the "cloud" over Lakian. Romney, though, is the embodiment of the silver spoon, country club Republican in the George Bush mold, running a noblesse oblige resume campaign devoid of any sense of change. He has spent more than $700,000 on commercials displaying his handsome family, and there is no question that he looks like a U.S. Senator, poised and confident. On the issues, he is shadowing Teddy Kennedy positions so closely that Lakian has suggested he change his party affiliation. Romney supported the Clinton crime bill, while Lakian blasted away at the Democratic pork. Romney supports employer mandates if universal health coverage is not achieved in a few years. Lakian favors the market solutions of the Dole-Packwood plan. Romney favors gun control; Lakian opposes gun control on carefully thought-through constitutional grounds. In Ross Perot style, Lakian supports a national initiative and referendum. 

A Globe poll earlier this summer showed either Romney or Lakian trailing Kennedy by 20 points. The Massachusetts political reporters I asked told me they think the revamped Lakian campaign of new ideas and dramatic change is the only kind that could beat Kennedy. Governor Bill Weld, a friend of Lakian, has remained aloof from the primary, but significantly endorsed the concept of the Armey flat tax in a recent radio interview, which led the Globe to lump Weld with Lakian in their editorial attacking the flat tax. If Lakian were to win on September 20 and go on to defeat Kennedy, Weld, who is sure to win re-election in November, would have a template for a presidential run in 1996. Both Weld and Lakian come from the libertarian wing of the GOP when it comes to social issues and are pro-choice on the abortion issue.

What I found most impressive about Lakian's advocacy of the Armey flat tax is his willingness to defend its most controversial features -- the elimination of all writeoffs, including charitable contributions and home-mortgage interest. Many supply-siders who like the Armey plan are scared to death of the politics behind these writeoffs. They are fearful the voters will prefer to keep them rather than swap them for a simplified system. Lakian, like Armey, is betting that the electorate is in a mood to reward the political party that actually produces tax simplification. It is because George "Read My Lips" Bush broke his tax promise that Clinton is now President. For much the same reason, Clinton and the Democrats are now on the ropes and are mulling over a 1995 "middle-class tax cut" that would look meager next to the flat tax.

One of the most appealing political features of the Armey-Lakian approach is that it permits dramatic increases in exemptions before personal income is taxed "once and only once at 17%." The individual exemption would be $13,100 for individuals, $17,200 for heads of households, $26,200 for couples filing jointly, and $5,300 for each dependent. A family of four earning $36,800, now paying $3,100 in federal income tax, would pay none. Nor would income be taxed a second time in the form of capital gains tax or estate tax. The political appeal of a federal tax system that would eliminate the taxation of capital gains and estates -- most of which have been swollen by a generation of inflation and should not be taxed -- seems undeniable. In his letter to the Globe answering its criticisms, Lakian wrote: "Because Massachusetts is one of the highest income states in the union, the simplicity of the Armey-Lakian flat tax would especially benefit our people, although the national economy as a whole would expand dramatically once relieved of the crushing complexity of the tax codes. The lawyers and accountants would find useful work, serving the hundreds of thousands of businesses that would be created in the wake of this sweeping tax reform."

Romney has not quite opposed the flat tax; instead he cited some estimates that say the flat-tax would cost the Treasury $300 billion a year. These, though, come from the Citizens for Tax Justice, a "public interest" liberal boiler room whose former executive director, David Wilhelm, is now chairman of the Democratic National Committee. In 1992, when Jerry Brown rode the flat-tax idea to a big win in the Connecticut primary, the CTJ also cooked up ridiculous estimates that the Clinton campaign used to stop Brown in the New York primary that followed. Wilhelm was then Clinton's campaign manager. The Brown flat tax proposal was also attacked by Senator Moynihan and The New York Times because it folded in financing of Social Security, an issue the Armey proposal avoids. Armey and Lakian cite the $30 billion static analysis estimate of the Congressional Budget Office, which is why the flat tax plan would be phased in over three years, starting at 20 percent and sliding to 17 -- allowing time for the liberated economy to generate far more than $30 billion in added revenues. Armey also says the nation's annual cost in paying and enforcing the tax laws, at least $200 billion, would be drastically reduced. 

Lakian is clearly behind with two weeks to go, but in 1978, when Jeff Bell defeated Clifford Case in that New Jersey milestone, it was not until the last two weeks that the voters took a serious look at the Bell campaign. Romney now accuses Lakian of being a "one-issue candidate." If Lakian can persuade the broad GOP electorate that he really will make this his single most important objective, he could still win two weeks from now. A Kennedy-Lakian race would be more than interesting. It would be the most important this November.