Rick Perry’s tax plan panned by conservatives and liberals alike
The reviews are coming in on Rick Perry’s flat tax plan—and even some conservatives are giving it a thumbs-down.
Take Alan Viard of the American Enterprise Institute in Washington. He finds the plan confounding in several ways.
First, there’s the idea of giving taxpayers a choice to stay in the current system or opt for Perry’s 20% flat tax. So much for the idea of junking an unpopular tax code rife with loopholes and tax breaks, Viard said.
“It makes no sense from a policy perspective,” Viard said. “If the new system is the better system in which to raise revenue, then everyone should be in it. It’s not better to have two systems.”
Jon Huntsman Jr., Perry’s rival for the GOP nomination, agreed.
“Unlike my plan to clean out the tax code entirely, Gov. Perry takes the easy way out by leaving in place a broken system,” Huntsman said. “Because his plan is optional it will maintain our outdated system of deductions and credits.”
And despite Perry’s pledge to do away with the costs related to deciphering the byzantine tax code, the dual tracks would likely require many taxpayers to calculate their liability under both systems, adding to, not reducing, their burden, said Viard, who gave Perry credit for releasing a “provocative” proposal.
Perry’s plan, which he unveiled earlier Tuesday in South Carolina, calls for an optional across-the-board tax rate of 20% for individual and corporate taxpayers. That’s the flat part. What’s not so flat is Perry’s decision to preserve popular deductions, such as those for mortgage interest, charitable gifts and state and local taxes.
He would also eliminate the estate tax and do away with taxes on investment income, which would disproportionately benefit wealthier Americans.
“The goal of my cut, balance and grow plan is to unleash job creation to address the current economic crisis, while generating a stable source of revenue to address our record deficit and put our fiscal house in order,” Perry said in a speech in Gray Court, S.C.
Basically, Perry is giving every taxpayer something. If your taxes are lower under the current plan, that’s fine. It they’re lower under his flat tax (as they would be for many higher-income Americans), that’s good, too.
It’s likely why Steve Forbes, the flat tax guru who helped Perry write his plan, called it a “win-win.”
Except there appears to be one clear loser: the federal government. Viard says Perry’s plan appears engineered to deprive the government of significant revenue. “It’s a starve-the-beast mentality,” he said.
To many conservatives, that’s the point. But Viard points out that it’s possible that Perry’s plan would produce even less revenue than 18% of the gross domestic product, which is the level at which Perry wants to cap federal spending. (Herman Cain’s 9-9-9 tax plan, by contrast, is close to being “revenue-neutral,” Viard said.)
Currently, the federal budget comprises about one-quarter of the GDP. Many economists believe it would be near impossibility to scale the size of the government back down to a level close to 18 %. To do so would require a radical restructuring of entitlement programs, the widespread elimination of federal jobs, and perhaps a substantial reduction in the military budget.
Perry, in his speech, did suggest that he was willing to tackle entitlement reform, suggesting it was time to raise the eligibility age for Social Security and Medicare.
But National Review’s Reihan Salam still wasn’t impressed, calling Perry’s plan “an embarrassment.” He said the plan shouldn’t be called a flat tax, but instead an “alternative maximum tax.”
“Essentially, what Perry has done is reverse the Buffett Rule,” Salam wrote Tuesday. “He has guaranteed that no American will ever pay more than 20% of her income in federal taxes. Indeed, affluent homeowners living in high-tax jurisdictions like New York City and Los Angeles earning up $499,000 will likely pay much less than that, as they’ll continue to have access to the mortgage interest, charitable and state and local tax exemptions.”
The Tax Policy Center doesn’t seem too wild about Perry’s plan either, with the center’s Howard Gleckman calling it a “remarkable free lunch-for-all plan” that scores a 10 on the “pander-meter.”
“At first glance it looks like an attempt to be all things to all people—big tax cuts combined with a promise to balance the budget with– this being campaign season—huge unspecified cuts in spending,” Gleckman wrote.
And you would expect the left-leaning Citizens for Tax Justice to be down on Perry’s plan. And you would be right.
“This would not make anyone’s life easier on tax day — except the wealthy Americans whose investment income would be exempt from taxes under Perry’s optional flat tax,” the group said in a statement. “These lucky taxpayers would quickly find that the optional ‘flat tax’ actually has two tax rates: zero percent for the investment income that mostly goes to the rich and 20 for the types of income that most of us depend on.”
President Obama’s reelection campaign also weighed in, saying that Perry’s plan is simply an effort to reduce taxes for the wealthy.
“The belief that middle class Americans will benefit if we just give another special break to those at the top was long ago discredited, which is why the president is fighting to create jobs now, restore economic security for the middle class and extend a tax cut that would give the typical middle class family $1,500 per year,” campaign spokesman Ben LaBolt said.
Perry was asked to address whether his plan would end up being a giveaway to the wealthy in an interview with CNBC Tuesday. His response? “I don’t care about that. What I care about is them having the dollars to invest in their companies.”