A simpler, flat-rate tax must be accompanied by measures to discourage an expansion of government spending, warns economist and Nobel laureate Gary S. Becker.

Tax and spending policies are related, argues Becker, because demands for increased government spending are kept in check only by the resistance of taxpayers to higher taxes. Tax reforms that lower compliance costs and reduce the tax penalties that discourage savings and work might weaken taxpayers' resistance to spending. And increased spending might do more economic harm than the gain from tax reform.

Resistance to higher taxes is greater when the burden is heavier and more transparent. That is why property-tax payers led the tax rebellion in many states. With a flat tax, Congress might be tempted to raise rates over time to finance increased spending.

Other flat taxes have been used that way:

• Value-added taxes (VAT) are flat taxes on purchases introduced in Europe at low rates in the 1960s -- but they now exceed 20 percent.

• VAT permitted a rapid expansion of government spending in Europe.

• Social Security taxes have a flat rate and began in the 1930s at very low levels.

• Now combined Social Security-Medicare taxes are close to 15 percent of wages and provide almost as much revenue as the individual income tax.

• These payroll taxes exceed 25 percent in many European countries.

A budget that is balanced by reducing spending rather than raising taxes can help control government spending. Congress could also establish an upper limit to the ratio of total federal spending to GDP or cap federal taxes at their present ratio to GDP.

Source: Gary S. Becker (Hoover Institution), "Yes, Pass a Flat Tax -- But Clamp a Lid on Spending," Business Week, July 1, 1996.