The clash between the establishment and the insurgency in the fight for the 2012 Republican nomination is shifting to a new arena: tax policy.
Texas Gov. Rick Perry and businessman Herman Cain, two of the candidates pursuing the votes of the most conservative bloc of Republicans, are both touting radical overhauls of the federal tax code. But former Massachusetts governor Mitt Romney, the candidate most closely associated with the party establishment, has opted against such an approach and has offered a proposal that would largely keep the current tax structure in place.
The differing approaches are yet another reframing of the risks-and-rewards choice being offered to Republican primary voters as they seek the 2012 standard-bearer: Are they more focused on beating President Obama next year or turning the country in a more conservative direction?
Party activists have long called for moves to simplify the tax code, as Cain and Perry are proposing. But these approaches come with a major risk in an electoral season. Cain has already faced strong criticism for his plan to shift the tax burden from the wealthy to more lower-income Americans, questions Perry will probably have to answer as well.
Critics say the Cain plan and other flat-tax proposals in general are harmfully regressive and do not produce enough revenue to fund the government.
In a speech in Las Vegas on Wednesday, when he announced his embrace of the flat tax, Perry bluntly declared, “I am not the candidate of the establishment,” an obvious jab at Romney. The next day, the former governor cast both Cain’s and Perry’s ideas as tax increases on the middle class, the same charge Democrats have made.
Cain’s “9-9-9” proposal, which he has been refining in recent days, would create a new tax structure, replacing the current progressive income tax system and levies on payroll income that help fund Medicare and Social Security. Instead, he would impose a 9 percent federal sales tax, a 9 percent income tax and a 9 percent levy on businesses.
The Club for Growth, a conservative anti-tax group, has praised Cain’s proposal as “both pro-growth and a good starting point on the way to a flat or fair tax.” But some Republicans have sharply attacked it as a tax increase, a claim supported by data.
An analysis by the Tax Policy Center said that while many upper-income taxpayers would get reductions under the proposal, 84 percent of Americans, many with lower incomes, would pay higher taxes.
On Friday, Cain announced a proposal to address this concern by creating tax breaks and exemptions to help people who are poor and businesses in low-income areas. The move could blunt some of the criticism but also take away from the simplicity that Cain has said is one of the most important reasons to adopt his plan.
Perry’s proposal, which he says he will detail Tuesday in South Carolina, will provoke similar criticisms that it benefits wealthy Americans.
Romney, in contrast, has proposed a 59-point economic plan that largely endorses the controversial tax cuts passed under the George W. Bush administration that have survived under Obama but without a comprehensive change to the system. His biggest adjustment would be to exempt taxes on capital gains, dividends and interest from people who make less than $200,000 a year.
That particular proposal has earned him the scorn of some conservatives, who accuse him of echoing Obama’s effort to raise taxes for people making more than $250,000 a year. In Friday’s Wall Street Journal, columnist Kimberley A. Strassel wrote: “Mr. Romney is clearly hoping that his own passive form of class warfare will head his opponents off at the blue-collar pass.”
Romney promises that there is more: “In the long run, Mitt Romney will pursue a conservative overhaul of the tax system that includes lower and flatter rates on a broader tax base,” his campaign says in the summary of the plan.
This tactical divide among Republicans is not new. In 2010, a number of prominent Republicans, most notably Rep. Paul Ryan (Wis.), now the chairman of the House budget committee, wanted to release a number of proposals that would reform the tax code, Social Security and Medicare. But top party leaders countered that the best strategy for the GOP was to spend time attacking the leadership of congressional Democrats and Obama, not touting a series of complicated proposals.
This debate is playing out in the nomination fight. Romney has from the beginning run a campaign focused on blaming Obama for the struggling economy. But Cain has galvanized conservatives around his “9-9-9” tax plan, even as it is now under fire.
“Republicans believe the time is right for unusually bold reforms in the tax code,” said Pete Wehner, who was a speechwriter and policy adviser to President George W. Bush. “For Governor Romney, my instinct is that he needs to be bolder in his tax reform plan than he has been — and for all sorts of reasons, he would be very well-positioned to advocate sweeping reforms beyond what his current plan would do.”
But as Cain is finding out, proposing a broad plan has its own challenges. Since his rise in the polls, he has been under relentless attack for his tax plan, not just from Democrats but his GOP rivals as well.
“Because we put a bold solution on the table, some of my fellow contenders have accused me of being too bold,” he said Friday. “This economy cannot wait. It is on life support. We need a bold solution.”