When Texas Gov. Rick Perry unveiled a tax plan Tuesday, there was some hope that he would deliver viable tax reform and distinguish himself from his Republican presidential rivals.
No dice.
Perry’s plan— like those plans of former Massachusetts governor Mitt Romney and former Godfather’s Pizza chief executive Herman Cain — is deeply disappointing when measured against the triumvirate of good tax-policy principles: fairness, simplicity and the ability to raise sufficient revenue.
Although Perry and Cain certainly get points for boldness for suggesting an entirely new tax system, their plans fall woefully short on all three criteria generally embraced by tax experts. Romney’s approach is more conventional and simply tweaks the current baffling tax code — but without any major improvements.
Everyone from corporate executives to small-business owners to average Americans is studying the proposals and their distributional effects to try to divine how they would be affected by the changes. Would the emphasis on flattening and simplifying the tax code help the wealthier more than the middle class, as many experts are predicting? And is this rush to reduce tax rates a thinly veiled effort to starve government programs by reducing the long-term revenue flow as a percentage of the economy? Here’s a snapshot of the “Big Three” GOP tax plans:
● The Perry plan offers taxpayers the choice of paying under the current federal tax system, or under a new flat tax of 20 percent that would be applicable to all individuals, no matter what their income.
Those opting for the flat tax system would pay no taxes on capital gains, dividends, interest and Social Security. They would still get to deduct mortgage interest, charitable donations and state and local taxes, and their standard deduction would be bumped up to $12,500 from the current $11,600.
For all taxpayers, no matter which system they opt for, the Perry plan scraps the estate tax. The corporate tax would drop from today’s top rate of 35 percent to 20 percent.
●Cain’s “9-9-9” plan would scrap the current tax code and introduce a 9 percent business tax, 9 percent individual income tax and 9 percent national sales tax. Taxpayers living below the poverty line would be excused from the individual income tax.
●Romney’s plan extends the Bush-era tax cuts, preserving today’s top marginal income-tax rate of 35 percent rather than allowing it to jump to 39.6 percent, as it is scheduled to do next year. It scraps the estate tax. And for taxpayers earning less than $200,000 a year, there would be no taxes on capital gains, dividends or interest. The plan would also lower the corporate tax to 25 percent.
When it comes to fairness — defined as distributing the tax burden according to who can afford to pay it — the Cain plan gets the lowest grade. That’s because it would give massive tax cuts to the wealthy and tax increases to any taxpayer with annual earnings above the poverty line and below $200,000 a year.
The biggest increase in the tax burden would be for those earning between $40,000 and $50,000. They would pay $4,399 more in taxes annually, according to an analysis by the nonpartisan Tax Policy Center. A couple with the median family income of about $60,000 would incur a $4,326 increase.
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