Rick Perry’s flat tax plan: Everything you need to know

October 25, 2011

Texas Gov. Rick Perry announced his new economic plan Tuesday, in an attempt to add life to his flagging campaign. The Washington Post’s Perry Bacon Jr. reported that the key proposals in Perry’s plan, include spending cuts and a flat tax.

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.

Nia-Malika Henderson previewed the speech by posing five questions for Perry to answer about his flat-tax proposal on the new Elections 2012 blog:

1. Will the poor pay more? Perry’s plan, which keeps the national flat tax at 20 percent, comes with an opt-out provision, which means if you like your current tax rate, you can keep it. And deductions for mortgages and charitable contributions, etc, remain, possibly blunting the usual criticism that flat tax plans get.

2. Can he keep it simple? Cain’s plan caught on because it had the catchy 9-9-9 slogan. Then Cain went all apples and oranges and muddied up the simplicity of his plan. Perry doesn’t have a slogan so far and having to figure out whether to opt in or opt out offers its own complications.

3. Will it be revenue neutral? Lower taxes for the rich spur growth, creativity and job creation, or so the argument goes. But under Cain’s plan, for instance, government coffers would be in the red by $300 billion less according to the Tax Policy Center analysis.

4. Will the tea party like it? Dick Armey, the tea party king, is a big fan of the flat tax and says the flat tax system would be so simple that people could do their taxes on an index card. Yet, to quote Michele Bachmann, the devil has been in the details, and flat tax rates, once examined, have often ended up looking like a tax hike.

5. What will Mitt say? Romney has largely been opposed to the flat tax, saying at one point that it was a “tax cut for fat cats.” But now that the plans are all the rage, the former Massachusetts governor has a tightrope to walk on the issue. This could be his chance to frame the flat tax as a middle class issue.

Innovation’s Emi Kolawole compared Perry’s proposal to the other famous flat tax proposal in the 2012 election, Herman Cain’s ‘9-9-9’ proposal:

Cain’s plan would eliminate the current tax code, replacing it temporarily with a 9 percent income tax, 9 percent business transaction tax and 9 percent federal sales tax. Then, all taxes, including the 9 percent taxes, would be replaced with a single, national sales tax in the style of the “Fair Tax.”

Ultimately, while Cain promises a tax cut, his plan would actually mean a tax hike for millions of lower-income Americans who currently benefit from the earned-income tax credit and other deductions built into the existing tax code. And, as Kessler notes, it’s highly unlikely that, given the complex nature of the tax code and the numerous hoops changes to the code must go through, that a Cain Administration would be able to successfully implement changes three times over.

Regardless of where you stand on the 9-9-9 Plan, there’s no question Cain is thinking outside of the box when it comes to overhauling America's tax system. But what about the flat tax?

“I want to make the tax code so simple that even Timothy Geithner can file his taxes on time,” Rick Perry told an audience at the Western Republican Leadership Conference in Las Vegas Wednesday. The Washington Post’s Rachel Weiner reports that Perry proposes to place a flat tax at the heart of his economic recovery plan. The flat tax is, as the name suggests, a universal income-tax rate for all Americans. It would eliminate the progressive tax system currently in place, taking with it the complicated forms and costs incurred to implement a more complex tax system. The flat tax differs from the Fair Tax in that it would be a tax on income, rather than a national sales tax.

The flat tax has been proposed by political office seekers before, including publisher Steve Forbes, Sen. Phil Gramm (R-Tex.) and California Gov. Jerry Brown (D). But the tax proposal is a double-edged sword politically.

The economic proposals are part of a concerted effort to reboot Perry’s flagging campaign, as The Fix’s Chris Cillizza reports:

Perry’s economic speech comes on the same day his campaign is reportedly set to launch its first ads in Iowa and just 24 hours after news broke that he was expanding his political team to include a trio of veterans of Florida Gov. Rick Scott’s (R) 2010 campaign, as well as George W. Bush loyalist Joe Allbaugh.

Movement doesn’t always equal progress, but Perry and his (now-expanded) political team are clearly hoping to use the next three debate-free weeks to re-write the prevailing “Perry is fading” narrative of the campaign.

That Perry has fallen from the lofty frontrunning heights of late August is indisputable.

In a Washington Post poll taken in early September — two weeks after Perry got into the race — he stood atop the field with 30 percent. By earlier this month, Perry’s support had been cut in half. Early state polling has shown a similar arc, as the initial excitement over Perry has worn off following a series of lackluster debate performances.

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Beth Marlowe is a senior editor at Washington Post Express. She has written for The Washington Post, the Associated Press, Bloomberg Television and other publications.
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