Even as Rick Perry rolled out his own flat tax proposal, Newt Gingrich was quick to point out that he’s been a flat tax proponent since 1997. (“There are things I would to do, like a flat tax with virtual elimination of the IRS,” he said, back when he was Speaker of the House.)
Gingrich has his own flat tax plan on the table for 2012, and would like to “bump plans” with Rick Perry. To this end, he published a point-by-point comparison on his website. Right off the bat, I notice that Gingrich’s plan is also optional, although his rate is much lower – 15% to Perry’s 20%. The lower rate would probably win over more voluntary participants from the extremes of the income scale, but we’re still a long way from “virtual elimination of the IRS”… which would be obliged to service the old tax code, becoming the Windows 95 support department of the U.S. Treasury.
Gingrich doesn’t cap the deductions for charity and home ownership, while he notes both Perry and Romney include class-warfare caps for various aspects of their plans. Gingrich also proposes a much lower corporate tax rate of 12.5%, while Perry’s 20% is only average for an industrialized nation (although still much better than our insanely high current rates.)
Perry hasn’t talked about moving away from payroll taxes yet, but that’s usually a goal of flat tax reformers, and Gingrich would begin phasing them out right away. Besides facilitating far too much government bloat under the radar screen, the modern concept of the payroll tax always struck me as faintly tyrannical. Seizing someone’s income before they ever get to touch the money is closer to indenture than assessing a “tax.”
One of the most interesting differences Gingrich chooses to highlight with Perry’s plan is the way he treats state and local tax deductions. Perry retains this concept in his plan, but Gingrich would not allow taxpayers to deduct state and local taxes paid from their federal liability. He explains why: “The deduction is a federal subsidy for states to adopt higher state and local taxes. Removing the subsidy would lead states to reduce state and local taxes, or adopt their own flat tax reforms.”
That’s an interesting point, and logically consistent with the purpose of the federal tax system, which should be focused on funding the federal government in the most efficient, least painful manner possible. Our current federal system is headed for utter collapse… but several states will get there first. The federal subsidy of outrageous state taxes is one of the reasons so many states have turned into bloated, insolvent nightmares that make Uncle Sam blush.
“Plan bumping,” as Perry memorably described it to Herman Cain during the last GOP debate, is a great idea. All of these proposals can only benefit from competition with each other. Everyone on that Republican debate stage is a capitalist, so they should, by definition, be happy to engage in spirited competition to sell their intellectual products.