Perry’s economic plan would slash taxes, federal spending on programs
By Perry Bacon Jr.,
GRAY COURT, S.C.— Texas governor and Republican presidential candidate Rick Perry has released an economic plan full of long-held conservative goals, including personal accounts for Social Security, an optional flat tax, major spending cuts and a series of tax cuts.
The plan would dramatically reduce taxes, particularly on wealthy Americans and corporations. It would reduce the corporate tax rate from 35 to 20 percent, eliminate taxes on dividends and many capital gains and essentially cap individual tax rates at 20 percent.
Perry argues these tax cuts will spur economic growth by creating a more favorable environment for wealthy individuals and corporations to start or expand their businesses. But without significant spending reductions, the tax cuts could drastically increase the federal budget deficit.
“Taxes will be cut across all income groups in America, and the net benefit will be more money in Americans’ pockets with greater investment in the private economy,” Perry said to an audience of more than 200 inside the factory at ISO Poly Films, Inc. in this South Carolina town.
The “Cut, Balance and Grow” plan, which Perry first unveiled Tuesday in an op-ed in the Wall Street Journal, puts Perry firmly to the political right of former Massachusetts governor Mitt Romney in terms of economic policy.
As he releases the tax plan, Perry seems determined to re-energize his campaign and reassert himself as a candidate after weeks of struggles. In an interview with John Harwood, a reporter with CNBC and the New York Times, the Texas governor cast Romney — the GOP frontrunner — as a “fat cat”. He said he likes mentioning conservative falsehoods about President Obama’s birth because “It’s fun to poke him a little bit.”
Perry is clearly looking to woo tea party conservatives who have been reluctant to back Romney. In almost every way, he presents policies that are slightly more conservative than those of the former Massachusetts governor.
Romney has called for capping federal government spending at 20 percent of GDP, for example; the Texas governor proposes capping at 18 percent. (This year, under President Obama, spending is at 24 percent of GDP). Romney has proposed raising the retirement age to reform Social Security; Perry adopts an idea even more beloved by conservatives and hated by liberals: allowing young people to put their money into private savings accounts outside the traditional retirement system.
Romney would cut corporate taxes to 25 percent; Perry, 20. Although Romney has said one of his goals is a “flatter” American tax code, under Perry’s plan, Americans could either choose to pay taxes under the current system, or pay a 20 percent national flat tax.
Conservative activists have long called for the adoption of a flat tax. Indeed, Perry’s proposal for such a tax as an option is similar to one by former House Speaker Newt Gingrich, who would set the optional flat tax at 15 percent. Gingrich is also seeking the 2012 nomination.
Overall, Perry’s vision would call for much larger tax cuts and spending cuts than Romney’s proposals. It creates an even larger divide between him and Obama. If enacted, Perry’s plan probably would result in huge cuts to domestic spending programs and major tax cuts, particularly for the wealthy.
Under current law, marginal tax rates are as high as 35 percent, so taxpayers who chose to pay taxes under the flat tax system would see a significant reduction. The current tax code includes rates of 25, 28, 33, and 35 percent.
“Fixing America’s tax, spending and entitlement cultures will not be easy. But the status quo of byzantine taxes, loose spending and the perpetual delay of entitlement reform is a recipe for disaster,” Perry writes. “Cut, Balance and Grow strikes a major blow against the Washington-knows-best mindset.”
In the interview with Harwood, Perry drew a sharp distinction between himself and Romney.
“I consider what Mitt’s doing kind of nibbling around the edges. I consider what we’re doing bold,” he said.”
He dismissed the view that his plan would cause greater income inequality.
“We went through, ‘what are the ways to really give incentives to those that are going to risk their capital to create the jobs.?’ Those that want to get into the class warfare and talk about, ‘oh my goodness, there are going to be some folks here who make more money out of this, or have access to more money,’ I’ll let them do that,” Perry said.
Many of the other ideas in Perry’s plan, such a balanced-budget amendment to the Constitution and repealing Obama’s health-care law, have been embraced by nearly all of the other GOP 2012 candidates, including Romney. Perry, like the other Republicans, calls for ending the estate tax and the repeal of a bill to reform Wall Street practices, popularly known as the Dodd-Frank legislation.
The plan is being announced as Perry is looking to retool his candidacy and convince Republicans of his policy knowledge. A series of lackluster performances in debates have caused many in the GOP to criticize Perry, who has struggled to answer questions and offered views on some issues, particularly immigration, that many conservatives don’t like. Perry has plunged in the polls as a result.
Perry’s tax plan is a direct response to the rise of businessman Herman Cain, who has attracted many conservatives with a plan dubbed “9-9-9” that would replace the current tax structure with three 9 percent taxes: one on income, another on sales, a third on businesses.
Romney’s main tax proposal is to end taxes on interest and dividend income for people who earn less than $200,000 a year, but otherwise keep the existing system in place. Romney has suggested that both flat taxes and national sales taxes would largely hit the middle class, and independent analyses have shown that Cain’s plan would raise taxes on millions of Americans.
Perry’s proposal avoids this critique. Under his proposal, the millions of Americans who pay less than 20 percent of their income in taxes could continue to benefit from the various deductions they get under the current tax code. It’s hard to see how this move simplifies the tax code, however, as under his plan many Americans would have to determine their tax burden under two different systems.
And Perry was unwilling to take on some sacred cows in his plan. Even in his flat tax proposal, he keeps in place popular deductions for mortgage interest and charitable donations.
By contrast, former Utah Gov. Jon Huntsman Jr. has offered a far bolder plan, which would eliminate those popular deductions and all others, in favor of a new system that would create three personal income tax rates of 8 percent, 14 percent and 23 percent. Huntsman’s plan is modeled on the deficit- and debt-reduction recommendations of the bipartisan Simpson-Bowles Commission.
Democrats strongly oppose many of Perry’s ideas, and they are unlikely to become law, even if Perry is elected president.
Touting his flat tax, Perry held up a pocket-sized sample IRS form that is a single page. Perry also called for raising the retirement age for Social Security and the age at which Americans get Medicare benefits, although he offered no details on either idea, saying he would work with Congress on the specifics.
“My plan balances the budget as fast as any serious plan that is being offered out there,” he said.
Perry, repeatedly attacking what he called the “federal nanny state,” said he would look to review and potentially repeal all regulations on businesses passed under the Obama administration.
“This is a change election and I offer a plan that changes the way America does business,” he said.