Gray Sourt, SC — Texas Gov. Rick Perry, hoping to reinvigorate his flagging bid for the Republican presidential nomination, unveiled a new economic plan Tuesday in South Carolina that would give Americans the option of paying a 20 percent flat tax or continuing to pay income taxes under the current 3 million-word tax code.
The optional flat tax is the centerpiece of a broad economic initiative that includes Social Security and Medicare changes, spending cuts, freezing pending federal regulations and other steps aimed at bolstering the economy and balancing the federal budget by 2020. Perry described it as a “bold reform needed to jolt this economy out its doldrums.”
The flat tax would offer a major break for America’s wealthiest taxpayers by enabling them to move from the current top bracket of 35 percent into the 20 percent bracket. On the other hand, some 46 percent of Americans pay no income tax under the current system, so by saying citizens could choose to remain under that code, Perry would invite the rich to take a tax cut and the less well-off to continue avoiding taxes.
Thus, the optional flat-tax feature could shrink federal revenue and undercut Perry’s goal of balancing the federal budget in eight years, some economists warned. Other analysts said Perry missed the opportunity for true tax restructuring because he'd retain deductions for mortgage interest, charitable giving, and state and local tax payments for families that earn $500,000 a year or less.
“It makes good politics, but not the best policy,” said Joseph Rosenberg, a research associate at the nonpartisan Tax Policy Center, a joint project of the Brookings Institution and the Urban Institute, two respected Washington center-left public policy research centers. “It sort of misses tax reform and largely ends up being a large tax cut. He hasn’t done anything to the current tax system.”
The current tax code has six income brackets and tax rates ranging from 10 to 35 percent, rising with income.
Perry said his initiative would “unleash job creation to address the current economic crisis, while creating a stable source of revenue to address our record deficit and put our fiscal house in order.”
He said it would simplify the average person’s annual tax return to information that would fit on a postcard.
Perry outlined the plan, called “Cut, Balance and Grow” in a speech in Gray Court, S.C. He also proposed reducing corporate income taxes from 35 percent to 20 percent to enhance American competitiveness and promised to eliminate corporate loopholes and special-interest tax breaks.
He also proposed eliminating taxes on Social Security benefits, dividends, capital gains and the so-called “death tax” on estates and inheritances. Perry, whom opponents criticized for describing Social Security as a “Ponzi scheme,” said he'd preserve benefits for current and near-term Social Security beneficiaries but would allow younger workers to invest in personal retirement accounts.
He said he also would work with Congress to raise the retirement age for younger workers to “reflect the longer life span of today’s American workers.” He said he'd bar the federal government from borrowing money from the Social Security trust fund, as it currently does.
The Texas governor also said he'd authorize state and local governments to opt out of Social Security in favor of locally run programs.
Perry’s two closest Republican rivals offered their own economic plans earlier. Former Massachusetts Gov. Mitt Romney has proposed a 59-point jobs plan, while Atlanta businessman Herman Cain has surged in the polls largely on the strength of his 9-9-9 plan, which proposes 9 percent flat taxes on personal and corporate income and a 9 percent national sales tax.
Perry’s economic initiative came a day after his campaign announced a team of additional advisers to help him bounce out of a slump in the polls. The Texas governor entered the race in mid-August and quickly soared into the lead for the Republican nomination. He lost ground after stumbling in early debate performances.
(Beam reports for The State of Columbia, S.C. Montgomery reported from Austin, Texas, where he's the bureau chief for the Fort Worth Star-Telegram.)
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