Lagging in polls, Perry pitches (optional) 20% flat tax
— -- Seeking to boost a candidacy that has plummeted in opinion polls, Texas Gov. Rick Perry on Tuesday proposed overhauling the federal tax code with a single 20% rate for corporate and individual income tax — if taxpayers choose to pay it.
Perry's plan would give taxpayers the option of paying their current tax rate, which varies by income level, or the 20% rate. The single-rate plan would keep deductions for mortgage interest, state and local taxes, and charitable donations for those earning less than $500,000 a year. The plan would raise the standard deduction to $12,500 per person and eliminate the estate tax and capital gains tax.
Perry said he would balance the federal budget by 2020 and cap government spending at 18% of gross domestic product. That would require cutting up to $1 trillion from the annual budget.
"America is under a crushing burden of debt, and the president simply offers larger deficits and the politics of class division," Perry said. "Others simply offer microwaved plans with warmed-over reforms based on current ingredients.''
Sweeping tax proposals, however, are a staple in the Republican policy pantry. Millionaire publisher Steve Forbes used a 17% percent flat tax proposal as the centerpiece of his presidential campaigns in 1996 and 2000. In 2008, former Arkansas Gov. Mike Huckabee proposed abolishing the income tax in favor of a 30% sales tax. In the current campaign, Herman Cain wants a 9% income tax, corporate tax and sales tax, and former House speaker Newt Gingrich wants a 15% income tax. Former Massachusetts governor Mitt Romney has a 59-point economic plan, and former Utah governor Jon Huntsman would set only three tax rates and eliminate all deductions.
Perry's proposal won qualified approval from conservative tax reform organizations. Club for Growth President Chris Chocola said a flat tax would "unleash years of economic growth" and that eliminating the capital gains tax "would immediately add trillions of dollars in new wealth to the economy, benefiting all Americans."
But Perry's opt-out provision means the plan will pull in far less revenue than the current tax code, said economist Alan Viard of the American Enterprise Institute. Perry's proposed spending cuts are not enough to offset the loss, sending the deficit higher, which he called a "fatal flaw." Because taxpayers will have to calculate which plan is cheaper, it's hard to argue that the plan reduces the complexity of the tax code, he said.
Taxpayers will obviously choose the plan that requires them to pay less in taxes; "it guarantees the plan to be a revenue loser,'' Viard said. "For people at the top, the Perry plan just has to be better, so they will clearly opt into it.''
At a news conference Tuesday , Perry said the tax plan is intended to spur job growth but didn't argue with the premise it would benefit the rich. "If folks who have money are going to be creating those jobs, I don't have a problem in the world with that,'' he said.
Democrats including the Obama campaign and Democratic National Committee Chairwoman Rep. Debbie Wasserman Schultz, of Florida, said Perry's plan would benefit rich Americans at the expense of the poor and middle class.
