Texas Gov. Rick Perry will try to turn the page today on a dreadful two months in his once-promising campaign. He has a new campaign team and a new economic plan today. In the Wall Street Journal he gives an outline; he’ll give a speech later today.
I’m eager for more details, but my initial thought is that Perry deserves some praise on the tax side and significant criticism on the spending side, which by his own acknowledgment, is the hard part.
On taxes, Perry seems to have put in some thought and come up with a credible plan that, at the very least, is a vast improvement over 9-9-9.
The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.
This simple 20% flat tax will allow Americans to file their taxes on a postcard, saving up to $483 billion in compliance costs. By eliminating the dozens of carve-outs that make the current code so incomprehensible, we will renew incentives for entrepreneurial risk-taking and investment that creates jobs, inspires Americans to work hard and forms the foundation of a strong economy. My plan also abolishes the death tax once and for all, providing needed certainty to American family farms and small businesses.
My plan restores American competitiveness in the global marketplace and provides strong incentives for U.S.-based employers to build new factories and create thousands of jobs here at home.
First, we will lower the corporate tax rate to 20%—dropping it from the second highest in the developed world to a rate on par with our global competitors. Second, we will encourage the swift repatriation of some of the $1.4 trillion estimated to be parked overseas by temporarily lowering the rate to 5.25%. And third, we will transition to a “territorial tax system”—as seen in Hong Kong and France, for example—that only taxes in-country income. .. .
To help older Americans, we will eliminate the tax on Social Security benefits, boosting the incomes of 17 million current beneficiaries who see their benefits taxed if they continue to work and earn income in addition to Social Security earnings.
We will eliminate the tax on qualified dividends and long-term capital gains to free up the billions of dollars Americans are sitting on to avoid taxes on the gain.
There are political reasons to have an optional plan. In his original Roadmap for America, Rep. Paul Ryan (R-Wis.) included an optional simplified tax, although he proposed two rates rather than a single one. Ryan, though, didn’t offer an optional plan when it came to the Path to Prosperity, a real legislative proposal. There are practical reasons to steer clear of an optional plan. There is significant doubt as to how you can score an optional plan, and thereby test whether it will generate sufficient revenue. (Perry makes no claim on budget neutrality.) The optional aspect also detracts from simplicity, and some taxpayers may need to do their taxes twice to see which plan is better.
At least one critic is already blasting Perry’s tax ideas. Michael Brendan Dougherty writes: “Perry’s tax-plan would preserve all the confusion, waste, and market distortions in the current code, and add another layer. The politicians who manage that would get a new tax-code to fiddle with as a bonus - one that has little substance beyond massively cutting taxes for the wealthy. Perry is selling simplicity to the GOP’s base voters — that’s the most appealing thing about a flat-tax -- but most of these voters would actually pay less under the current more confusing code.”
Others I spoke with last night were more generous in their assessment, praising it as a pro-growth, viable plan. As far as campaign tax plans go, this seems a good-faith effort.
But as Perry himself says: “All of these tax cuts will be meaningless if we do not control federal spending.” And here is where Perry comes up short, disappointingly so. Given that Republican House members have gone on-record with much more specific cuts and entitlement reform (e.g. Ryan’s Medicare plan), Perry is being less forthcoming than virtually all elected Republicans. (Senators also cast votes on real budget plans, although none passed.) Perry sets out certain markers: “a clear goal of balancing the budget by 2020” and “capping federal spending at 18% of our gross domestic product, banning earmarks and future bailouts, and passing a Balanced Budget Amendment to the Constitution.” What is missing is the how . How do we get to these figures?
He offers scant specifics: “My plan freezes federal civilian hiring and salaries until the budget is balanced.” That’s not going to do the trick. Moreover, he is silent on whether defense cuts should be included, perhaps the most critical question facing the supercommittee. Perhaps he will provide more details later. But simply to say “we’ll balance the budget” is a dodge. The real work and courage come in spelling out the means by which we get there.
On entitlement reform, Perry dodges all tough issues. He is silent on Medicare. He is silent on Medicaid. Let’s hope that is all in the speech. And on Social Security he puts out this silliness: “Congressional IOUs are no substitute for workers’ Social Security payments. We should use the federal Highway Trust Fund as a model for protecting the integrity of a pay-as-you-go system.” Al Gore called this a “lock box.” It’s an accounting gimmick, not a plan for restoring fiscal soundness. Moreover, using the Highway Trust Fund is a blunder of the firstorder. That fund is bankrupt and relies on raiding the general fund. (This sort of error suggests that Perry paid little attention to the spending side of things.)
Then he offers this: “Cut, Balance and Grow also gives younger workers the option to own their Social Security contributions through personal retirement accounts that Washington politicians can never raid. Because young workers will own their contributions, they will be free to seek a market rate of return if they choose, and to leave their retirement savings to their dependents when they die.” Huh? What about fixing the current system? On that he takes a complete pass. (Mitt Romney has suggested two avenues for reform: indexing according to income and raising the retirement age.)
We should listen for the details of the speech and look at any paper the campaign puts out. Let’s hope Perry fills in the gaps and offers actual proposals instead of aspirations on spending control. Otherwise, it’s just hard-to-score tax plan with a lot of rhetoric about spending discipline.