Herman Cain’s 9-9-9 Plan Challenged by Rick Perry’s Flat Tax Proposal

By ABC News

Oct 25, 2011 10:24am
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                                                                                                              Brett Flashnick/AP Photo

ABC News’ Jonathan Karl, Huma Khan, Arlette Saenz and Ann Compton report:

Herman Cain stood little chance of winning the Republican presidential candidacy when the race began.

But the former Godfather Pizza CEO, whose recent web ad featuring his campaign manager smoking has fired up the blogosphere, now has GOP contenders scrambling to find a tax plan to challenge his 9-9-9 plan.

Rick Perry, whose campaign is in something of a free fall, unveiled an ambitious tax plan today designed to compete head on with Cain‘s 9-9-9 plan, a promise the Texas governor made in the last debate.

“I’ll bump plans with you, brother,” Perry told Cain at the CNN debate in Las Vegas. “And we’ll see who has the best idea about how you get this country working again.”

Perry is proposing a flat tax that would allow anybody – regardless of income – to pay one tax rate of 20 percent. Those with income less than $12,500 would be exempt, and households with incomes less than $500,000 would still be able to deduct mortgage interest and charitable contributions. But other tax breaks and loopholes would be eliminated. The plan also drops the corporate tax rate to 20 percent and would temporarily lower the rate to 5.25 percent to promote companies working overseas to move to the United States.

The plan would eliminate the death tax and end taxes on Social Security. It would also cut taxes on qualified dividends and long-term capital gains.

The flat tax would be optional. Those who wanted to stay in the current system could. The opt-out provision allows Perry to claim that nobody would be hurt by his plan, but it also makes it significantly less bold.

“The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents,” Perry wrote in an op-ed published in the Wall Street Journal today.

Like Cain, Perry is already drawing criticism for the plan that some say would leave existing loopholes and possibly create more. Cain’s plan entails a 9 percent business and individual flat tax and a 9 percent national sales tax.

Perry is borrowing a page from businessman Steve Forbes, who ran, and lost, on a flat tax in 1996. Forbes is now supporting Perry and helped him draft the flat-tax proposal.

“With firm leadership, which Rick Perry will provide – which is why I’m endorsing him for president – I think this will be a winning issue,” the publisher told Fox News. “People love the idea of radical simplicity of this horrific tax code. … I think what Rick Perry’s going to unveil on Tuesday is going to be very exciting, very low rate, generous exemptions for adults and for children, making it worthwhile to invest in America again.”

Perry is promising steep, unspecific, cuts to government spending and claims his plan would balance the budget by 2020. That claim, however, will be subject to intense debate.

The Obama campaign pounced on Perry even before his flat-tax plan was unveiled, claiming that Republican plans “embrace a far-right vision for our tax code.”

A published memo from Obama campaign policy director James Kvaal decries the new Perry 20 percent flat tax for individuals and corporations as “a ‘flat tax’ plan that radically restructures the tax system and shifts a greater tax burden onto the middle class.”

“Flat tax proposals reduce the contributions of the most fortunate households, shifting the burden onto the middle class,” Kvaal wrote. “Under a flat tax, all Americans would pay the same tax rate, abandoning the progressive principle that the most fortunate Americans can afford to contribute more.”

The Obama campaign points to the analysis by the non-partisan Tax Policy Center, which writes in its assessment of the flat tax plan from Perry, as well as Romney’s tax plan, that because “middle-class families generate their income from working, they will see little or no benefit from these [Republican] tax cuts.”

 

Even some Republican candidates are wary of a flat tax. Four years ago, Mitt Romney sharply criticized the idea of a flat tax as a windfall to the wealthy who would see their income tax rates cut dramatically and would no longer pay taxes on their investments.

“There was one aspect [of the flat tax] I thought would be troublesome,” Romney said in 2007. “And that was the very, very wealthy, the people who sit back and clip coupons, who have very substantial investments, would pay no taxes at all. People like Bill Gates and Steve Forbes for that matter, under this plan, would pay no tax and I don’t think that is acceptable to the American people.”

As he rolls out his new economic plan in South Carolina today, Perry is also revamping his campaign staff, bringing in several old hands, including Joe Albaugh, who managed George W. Bush’s presidential campaign in 2000.

Perry has plunged in the polls in recent weeks. In the latest CBS News-New York Times poll released today, Cain tops the Republican field, followed by Romney and Gingrich. Perry, who led the poll in mid-September, plunged to 6 percent support, below Rep. Ron Paul, R-Texas.

Perry had 12 percent in early October and 23 percent in mid-September.

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