Rick Perry’s Flat Tax Hopes to Simplify Code, Redistribute Tax Burden
EmailFirst there was a 59-point plan, then a 9-9-9 plan and now a third tax reform strategy is being tossed into the ring: a flat tax.
Think of the plan GOP presidential candidate Rick Perry will announce next week as the halfway point between Mitt Romney’s extensive 161-page economic proposal and Herman Cain’s simplistic 9s.
Like Romney’s plan, Perry’s apparently retains portions of the current tax code, such as the payroll tax. But similar to Cain’s plan, it scraps the majority of the multi-thousand-page code in favor of a simpler, single-rate system.
“I want to make the tax code so simple that even [Treasury Secretary] Timothy Geithner can file his taxes on time,” Perry said Wednesday.
A flat tax might do just that. Proponents of the decades-old proposal say that filing taxes under a flat tax system would be so simple the entire tax form would fit on a postcard.
The premise of a flat tax is to streamline the current system of loopholes and deductions and replace it with one rate that individuals and businesses at all income levels will pay. Similar to both Cain’s and Romney’s plans, a flat tax eliminates taxes on interest payments such as capital gains and dividends, as well as the estate, or “death,” tax.
“It is essentially protecting people from taxes on their investments as a way of encouraging more business development and the expansion of jobs,” said Roberton Williams, a senior fellow at the non-partisan Tax Policy Center. “That’s the intention.”
Williams said about half of the tax filers that will see a lower tax burden because of these exemptions are in the top 1 percent of income earners and make more than $2.2 million per year.
Steve Wamhoff, the legislative director at Citizens for Tax Justice, said he does not support a flat tax because it amounts to a “consolidation of loopholes for investment income and grants one big exemption for the rich.”
“Clearly, it seems like the unstated goal is to make the overall tax system less progressive,” Wamhoff said. “Almost seems like they are trying to make the rich pay less and the poor pay more.”
While Cain’s plan provides no exemptions for low-income workers, flat taxes rarely apply to people at the lowest end of the income scale. So while low-income workers might lose deductions such as the Earned Income Tax Credit and deductions for having children that knock many of them off the income tax rolls, they might be able to exempt most or all of their wages up to a certain threshold from being taxed.
“Just about every flat tax plan assumes relatively generous family allowance,” said Dan Mitchell, a senior fellow at the libertarian Cato Institute. “Under the current system the poor don’t pay any tax, and under a flat tax the poor don’t pay any tax.”
High income people would be most impacted by flat taxes because their rates would likely drop by about 15 percent or more, depending on the flat tax rate Perry settles upon.
Proponents of the flat tax claim that lowering taxes on the rich and eliminating the double taxation that comes from capital gains and dividends taxes will encourage people and businesses to invest, thereby jump-starting the economy.
“We don’t want rich people putting money into municipal bonds,” Mitchell said. “We want them creating the next Microsoft and Apple to grow the economy.”
Mitchell said that Cain’s 9-9-9 plan and the flat tax plan that Perry is expected to propose are “both equally good” for economic growth.”
“Cain’s plan is based on the notion that you are going to have a low tax rate and no double taxation,” Mitchell said. “So the underlying theory of Herman Cain’s plan is the exact same as the underlying theory of the flat tax.”
Mitchell said the “drastic difference” between the plans is that 9-9-9 gets rid of payroll taxes, which fund Social Security and Medicaid, and makes up for the lost revenue by instituting a 9 percent national sales tax.
The tricky part lies in the politics of passing such drastic overhauls of the tax system, Mitchell said.
“I would bet money that I will live my entire life and we’ll never have a flat tax in America,” he said. “I hope I’m wrong, but there are just so many special interest groups.”
Mitchell said implementing a flat tax or any sweeping tax reform is an “enormous undertaking” because America has “100 years of barnacles on the income tax with all of its different loopholes and preferences, every one of which has a special interest group attached to it.”
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“Proponents of the flat tax claim that lowering taxes on the rich and eliminating the double taxation that comes from capital gains and dividends taxes will encourage people and businesses to invest, thereby jump-starting the economy.”
This is patently absurd. Folks looking to invest will continue to do so regardless of taxes because there isn’t many alternatives, just like Buffet mentioned.
Posted by: Bobo McStevens | October 21, 2011, 7:26 am 7:26 am
I favor simplified taxes but not to encourage investment, that’s trickle down smoke and mirrors. Do it to close loopholes, to make it fair, and to raise more revenue as a result. A flat tax would fit nicely on top of Rick Perry’s flat head, but most people’s heads are curved, so throw in a couple of tax rate steps to the flat tax concept and call it a semi flat tax. Clearly if the rich advocate a straight flat tax, then it is to the detriment of the middle class. As with water running downhill, that’s the way it is and that is how it always will be. Apparently the middle class just enjoys getting p……d on when it comes to allowing the moneyed to corrupt their government and when it comes to being taxed unfairly.
Posted by: sameagain | October 21, 2011, 8:11 am 8:11 am
It seems as though the Republicans and Tea Party folks have campaigns funded by bankruptcy lawyers. Being middle class and having a house, these tax schemes would eliminate the only benefit of the tax code that keeps me afloat, my mortgage right off. The 999 would actually raise my sales tax to 17.5 as my state already takes a good chunk. They say they are lowering and simplifying the tax code, but their ideas benefit nobody I know (e.g. I know no millionaires). They say it would help rich people feel happy to invest in this country…but people and companies have seem to have been investing here less and less as their taxes have been lowered by during the Bush admin. What kind of people believe this Republican / Tea Party line that trickle down economics works?
Posted by: george | October 21, 2011, 8:29 am 8:29 am
I’m about to release details of my new 11-0-6 tax plan. Not only is it more simple than Romney’s economic proposal and more substantial than Cain’s plan, it makes MUCH more sense than Perry’s flat tax. In addition, it’s the BEST possible plan, and no one will be allowed to introduce any more new plans after mine; you would just be copying me by doing so, and your proposals couldn’t realistically outshine mine, because mine cannot be topped.
Posted by: Aaron Ververs | October 21, 2011, 8:30 am 8:30 am
“Williams said about half of the tax filers that will see a lower tax burden because these exemptions are in the top 1 percent of income earners and make more than $2.2 million per year. Steve Wamhoff, the legislative director at Citizens for Tax Justice, said he does not support a flat tax because it amounts to a “consolidation of loopholes for investment income and grants one big exemption for the rich.”…High income people would be most impacted by flat taxes because their rates would likely drop by about 15 percent or more, depending on the flat tax rate Perry settles upon.”
LOL! Once again, the exact opposite of what America wants or needs. Three quarters of Americans favor a small increase in the income tax rate for people making over a million dollars a year. A clear majority of every political stripe wants this, according to all the recent polls. So what do these morons running for the Republican nomination do? Come out with plans that will cost poorer Americans MORE and rich Americans LESS. Could they possibly be any more out of touch with America than they are now? It’s really pathetic and craven when these idiots come out with these “plans” that clearly have ZERO chance of ever becoming law, simply in order to pander to their dumbed-down constituency…………
Posted by: Searambler | October 21, 2011, 8:47 am 8:47 am
“Clearly, it seems like the unstated goal is to make the overall tax system less progressive,” Wamhoff said. “Almost seems like they are trying to make the rich pay less and the poor pay more.”
Gee, I don’t know about that.
Under the flat tax GE would have to pay taxes which would be better than the $0 they currently pay. So in that case the rich would pay more.
It really isn’t so clear, maybe your glasses are fogged up Wamhoff.
Posted by: Noz | October 21, 2011, 8:58 am 8:58 am
I wish the entire IRS could be demolished. Go to a national slaes tax instead unless one”s income is at least 2million yearly. The IRS allowed tax evaders to come clean without penalty,and they will take money from people who are behind at no fault of thirs.The
IRS has no business in peoples’ finances.They will put levies on peoples’ bank accounts and some people can never recover or pay bills or buy medications!!!! The IRS is no better than a slave master. They make peoples’ lives horrible!!!!!
Posted by: gnichols | October 21, 2011, 9:15 am 9:15 am
Popular amongst simpletons, which is why Perry likes it. However in the few instances a flat tax has been seriously examined it has proved anything but easy to manage and after lots of problems has been quickly abandoned. Trying to implement it in the world’s largest economy is going to be plain impossible, I would say disastrous but it would be so obviously unfair, easy-to-cheat and unworkable, it won’t ever get to the stage of actually being implemented, it will simply be quietly abandoned.
Posted by: John | October 21, 2011, 9:47 am 9:47 am
Its really funny to see people still quoting Warren “Please Tax Us Rich Folks More” Buffet, since he is engaged in a 10 year legal battle to avoid nearly $1,000,000,000 in taxes on the company he runs.
Posted by: Joe White | October 21, 2011, 10:18 am 10:18 am
Perry should just give it up and go back to what’s left of burnt out Texas. Everyone knows about your governing and views and your not what we want or need, and more importantly desire, in a President. So don’t go away mad, but please, just go away and quietly as possible and take Romney and Cain with you. Thank you so much.
Posted by: not2bad | October 21, 2011, 10:21 am 10:21 am
I don’t see why people think that one segment of society should pay more than another…everyone should pay the same (as long as loopholes are closed). It boggles my mind when people say that the “rich” should pay more; they would with a flat tax! 15% of a $1,000,000 is A LOT more than 15% of $30,000.
Posted by: Indy63 | October 21, 2011, 10:43 am 10:43 am
I don’t understand why people think that simpler is always better. A one page tax code might be easier to comprehend, but it does not mean it is better. The reason the current tax code is so long, it is because it takes into account a bunch of situations, in order to close loopholes. But despite that, loopholes still exist. A simple computer code that asks you to input your age and output it on the screen is only a 5 lines script. However, you have to write additional codes to prevent people to enter wrong information (letters instead of numbers), or special characters or to prevent to crack the code, etc…
It’s really troubling that the GOP candidates are now focusing on tax code rather than job creation. They are literally gambling that if the tax code is changed then it will have an effect on job creation. However, change in the tax code is much more far reaching than just affecting job growth if ever it does affect job growth. The reason it is gambling is that it is not a direct path to job creation: their assumption is that corporates are not hiring because they are taxed too much. But what about demand? All Europe countries are passing austerity measures, China has seen its economic growth decreased lately. So who is going to buy those US products. There is no demand. A good example is the house market. Despite all the tax break for new home owners, we have not seen any effect on the house market. People are broke and cannot afford to buy a house…it’s simple as that.
Posted by: picooz | October 21, 2011, 11:12 am 11:12 am
It appears to me that most of the new tax plans are based upon the ‘Monopoly’ game theory of economics. The rich get richer and take it all. Where is that biblical spirit that says unto whom much is given much is expected.
If the rich are the ones creating jobs, then unemployment should be going down not up because the wealthy are getting more wealthy.
Posted by: Bruce Laube | October 21, 2011, 1:33 pm 1:33 pm
Excellent plan Gov. Perry. You have done such a great job in TX and I wish you success for your nomination.
Posted by: nancy | October 21, 2011, 11:17 pm 11:17 pm
Another crappy plan from another Republican who will never see the inside of the White House. Ho hum……………
Posted by: Searambler | October 22, 2011, 12:55 pm 12:55 pm
The problem with a flat tax is that it DOES shift the tax burden…onto the lower class americans. This essentially means that while the upper and high-class citizens will see a significant tax break, the middle and lower classes will be taxed at more than double their current rate. This is the same ideology that every republican since reagan has used: socialized debt, capitalized profit.
Posted by: Jon | October 24, 2011, 2:00 pm 2:00 pm
Transparency is what is needed. I have never met a person that admitted to not paying taxes-in fact quite the opposite I have never met a person who did not pay taxes. People are proud of paying taxes. The problem is everyone of us disagree with the way tax money is spent. We need transparency. The gas tax only has enemies because we think it is spent for beaucrats instead of roads. Linked-dedicated- taxes are still more popular than general fund for the politicians to play with.
The problem is not too much taxation-the problem is weDO NOT TRUST our political leaders, should we????????
Posted by: Ron Rose | October 25, 2011, 10:23 pm 10:23 pm