Perry’s “Flat” Tax: Good Policy or Hail Mary?

Rick Perry has found himself at the bottom of the second tier after what seemed like a cake walk to the presidency.  But the Rick Perry bankroll has pundits on the ready for the next move upward.  On Monday, Perry tickled the media with a preview of his 20/20 Flat tax.  His overall plan which is named “Cut, Balance and Grow” seems much less catchy, especially if he has his eye on a primetime ABC host slot.

If one were going to summarize the plan, they might suggest that Perry believes in “caps”.  His 20% flat tax is optional, so essentially everyone paying more than 20% currently can move to 20% while everyone paying less can still pay their current rate. It also moves the corporate rate to 20%, kills the death tax, and removes taxes from qualified dividends and capital gains.  The plan also includes capping spending at 18%.  I believe talking about caps on spending as a percentage of GDP are a mistake for the simple fact that if you do this, what are the odds that congress will ever spend less than this amount?  Then again, after what we’ve seen in the last three years, it doesn’t sound half bad.

James Pethokoukis breaks down Perry’s plan over at The American:

—A choice between a new, flat tax rate of 20 percent or their current income tax rate.

—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.

—Abolishes the death tax once and for all, providing needed certainty to American family farms and small businesses.

—Lowers the corporate tax rate to 20 percent—along with a tax holiday for foreign earnings—and moves toward territorial taxation.

—Eliminates the tax on Social Security benefits.

—Eliminates the tax on qualified dividends and long-term capital gains.

Oh, and the Perry Plan also promises a balanced budget by—you guessed it—2020, while reducing spending to 18 percent of GDP.

From the perspective of liberty, it’s a good looking plan since it definitely reduces the tax burden.  I would like to see the revenue projection myself.  I would find it hard to believe we get much more than the outstanding burden of SSI, Medicare and Medicaid (about 1.75 Trillion dollars) from this plan.

The Flat Tax is a very interesting concept.  I tend to think that it’s flaws are that it does nothing to remove excise taxes, or deal with the ammo that politicians hold in their pens.  I also look at the 47% of American who pay no income tax and wonder how palatable such a tax is without having “tiers” built in.  Perry’s plan does cover this with the $12,500 deduction but one has to wonder how many will bother to get that far once they hear “20%”.  Bottom line is, it has a chance of being passed through congress, and that definitely merits consideration.

Herman Cain’s “9-9-9 plan” has been his strength to this point, but it is starting to become his weakness.  Throwing out a Flat Tax idea for Perry seems to recognize the popularity of major tax reform with the GOP and at the same time be a way of throwing his Texas sized 10-gallon hat back in the ring.

It’s either that, or a Hail Mary pass at becoming relevant again with a gimmicky tax plan.

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