The Tax Policy Center has released a detailed analysis of Rick Perry’s tax plan, and its findings aren’t pretty. The nonpartisan group — which is jointly run by Brookings and the Urban Institute — estimates that the tax cuts under Perry’s plan would reduce federal tax revenue by nearly $1 trillion in 2015 compared with current law, which assumes that the Bush tax cuts and other tax breaks due to the expire at the end of 2012 aren’t renewed. That would be a whopping 27 percent drop in total projected revenue.
The group also analyzes what would happen if the Bush tax cuts were extended until 2015, and Perry enacted his plan: Those with an income between $40,000 and $50,000 would see an average 0.5 percentage point tax rate reduction, while those earning more than $1 million would see a average 16 percentage point reduction. The poorest Americans earning less than $10,000 would actually see an average tax increase of 1.7 percentage points. The Perry’s tax plan would still be a revenue loser in that scenario — losing about $570 billion in tax revenue 2015 — but less so than if you assume the Bush tax cuts expire.
The Tax Policy Center analysis lies in sharp contrast to the rosy fiscal portrait painted by Brooklyn-based consulting firm John Dunham and Associates, which the Perry campaign hired to evaluate their plan. JDA estimated that revenues would shoot up to $2.8 trillion by 2014 and make up 19.5 percent of GDP by 2020, exceeding the Congressional Budget Office’s current estimate by $400 billion. But JDA used a so-called “dynamic scoring” method that assumed that Perry’s tax breaks would generate enormous economic activity that would make up for the cost of the cuts — a method that many Republicans have embraced but which independent agencies like the CBO have rejected as a way to evaluate the upfront cost of legislation.
“The bottom line on the consultant study is that it paints an unrealistically rosy scenario — it assumes enormous growth that’s much much faster than possible, and that’s the only way that their plan does not lose revenue,” says Bob Williams, a senior fellow at the Tax Policy Center who helped put together the analysis. Williams emphasizes that lower-income Americans would end up having to bear the brunt of Perry’s tax cuts if they were enacted, given the magnitude of lost revenue. “Even if the lower incomes going to be protected from a tax increase, they’re not going to be protected from spending cuts,” he concludes.
Supporters of Perry’s plan have criticized the Tax Policy Center — which also produced a widely-cited analysis of Herman Cain’s plan — as being a politically motivated group of “liberals.” In recent days, Perry’s campaign has held firm to the line that the tax plan wouldn’t be a revenue-loser, reiterating the Reagan-era refrain the tax cuts will ultimately pay for themselves. I’ve contacted the campaign for comment on the Tax Policy Center’s latest findings, and I’ll post an update as soon as I hear back.