A closer look at Gingrich’s ‘flat tax’ plan
By Suzy Khimm,
Newt Gingrich released his tax plan the same week that Rick Perry unveiled his in October. The two tax plans bear many similarities, but few took much notice of Gingrich’s at the time. Now that Perry has cratered and Gingrich has surged in the polls, Newt’s proposal — which he describes as a “flat tax” plan — is starting to receive more attention, and it goes even farther than most of his rivals in lowering taxes.
GETTY IMAGESLike Perry, Gingrich would give Americans the choice to be taxed under the current system or to opt into a “flat tax” alternative.
Gingrich one-ups Perry, however, and makes both individual and corporate tax rates even lower: The individual flat rate would be 15 percent, and the corporate rate would be just 12.5 percent — about a third of its current level of 35 percent. (Both rates would be 20 percent under Perry. By contrast, many Republicans have discussed lowering the corporate rate to around 25 percent.) Both would exempt capital gains income completely from taxation, but Gingrich would implement his change more quickly.
What’s more, Gingrich preserves deductions for corporations and rich individuals that Perry eliminates: He preserve deductions for charitable giving and mortgage interest to all Americans, whereas Perry only keeps them for families earning less than $500,000. Perry vows to eliminate all corporate tax deductions, while Gingrich would preserve them. As such, corporations and the richest Americans could stand to benefit even more under Gingrich’s plan than Perry’s.
Under Perry’s plan, those with more than a million in income would save $500,000 in taxes by 2015, due to a 60 percent drop in their tax rate, and those benefits would be even bigger under Gingrich. According to the Tax Policy Center, Perry’s plan would lower total projected government revenue by 27 percent—a $1 trillion loss in 2015 alone. Gingrich’s plan, accordingly, would result in even bigger revenue loss.
Gingrich, in fact, invited Perry to “bump plans” with him, boasting that his proposal is “Far Bolder than Perry’s Plan and Will Lead to Far More Robust Job Creation and Capital Investment in United States.” Republicans have argued that the Tax Policy Center is relying on a “static” tax analysis that doesn’t take into account the massive economic growth that would result from their tax cuts. Gingrich’s tax plan goes even farther to reduce taxes than Romney, Perry or Cain, which probably explains why it’s already received praise from the likes of Grover Norquist.
That said, Gingrich also preserves more of the exemptions, deductions and tax loopholes for individuals than Perry does, which could reduce taxes for lower- and middle-income families. Gingrich keeps the child tax credit, the Earned Income Tax Credit, and the deduction for purchasing health insurance. Though their marginal tax rate might be higher under the Gingrich plan —15 percent is higher than what many lower-income Americans currently pay — their effective rate could be lower once those additional credits and deductions are applied, particularly for families with children.
“Low-income families might be better off under Gingrich plan, particularly if they have a number of kids. Single people might not be,” says Roberton Williams, senior fellow at the nonpartisan Tax Policy Center. But though their taxes might go down, the benefits that lower- and middle-income people would accrue under Gingrich’s “flat tax” would be relatively small, compared with how the top earners would fare under the plan, creating a tax system that’s “very regressive,” Williams concludes.