Today Rick Perry rolls out his “Cut, Balance, and Grow” package of reforms, which is centered around a flat tax, a federal spending cap, Social Security privatization, and an imperative to balance the budget by 2020.
“The folks in Washington might not like to hear it, but the plain truth is the U.S. government spends too much,” declares Perry in a Wall Street Journal editorial today. “Taxes are too high, too complex, and too riddled with special interest loopholes. And our expensive entitlement system is unsustainable in the long run.”
It seems fair to tackle the latter point first, since Perry’s “Ponzi scheme” critique of Social Security was supposed to be his undoing, before his campaign slipped on certain other banana peels. Perry wants to seal off the existing Social Security fund from congressional raids, in the manner of the federal Highway Trust Fund, but he doesn’t stop with “lockboxes.” He also wants to give younger workers a way to opt out of the system, and create personal retirement accounts they will fully own, including the ability to pass on the balance to their heirs when they die. Since Perry also proposes to eliminate the “death tax,” that would allow a good deal of middle-class wealth to roll forward into the next generation, instead of vanishing into the bottomless maw of government.
Perry would eliminate 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.”
The centerpiece of Perry’s plan is a tax reform he decided not to call the “20-20 Plan,” although pundits are already doing it for him. He calls for a 20% flat personal income tax, with no deductions except mortgage interest, and charitable donations for families earning less than $500,00 per year. There would also be a hefty $12,500 standard deduction. Since he boasts that Americans would be able to “file their taxes on a postcard,” he seems inclined to do away with paycheck withholding, a mechanism that has allowed Big Government to leech away billions of dollars workers never even see.
This would be coupled with a 20% corporate tax rate, flat as a steam iron after thousands of pages of tortured tax law and corporate welfare provisions are discarded. As Perry notes, “The mind-boggling complexity of the current tax code helps large corporations with lawyers and accountants devise the best tax-avoidance strategies money can buy.” His 20% rate is solid as a rock, predictable as sunset, and inevitable as another Transformers movie.
The personal flat tax is optional – Perry would allow people to retain their current tax rate if they prefer. This might sound odd, but it’s actually been a component of many flat-tax proposals over the years. It helps prevent the Congressional Budget Office from using inaccurate static analysis to declare the Flat Tax a revenue-shrinking non-starter, and eases the transition for those who fear the 20% flat rate might raise their taxes. Like other flat taxers before him, Perry is doubtless confident the new system will win everyone over, sooner or later… and heavy participation would lift a massive $483 billion compliance burden off the backs of the private sector.
On the other hand, if the existing tax code is preserved, a lot of upper income earners would probably choose to remain hidden within its weeds. Simplicity is not a big draw for them – they hire professionals to prepare their taxes. The unpredictability of having to guess how many people will choose the flat tax might throw static analysis hell-hounds off the trail, but it’s also the kind of uncertainty we need less of in our government. I come from a computer background, and the opt-in provision of Perry’s plan strikes me as keeping a complicated, crash-prone legacy system running in the basement, while simultaneously trying to install sleek new software in the front office. People always end up fiddling with the supposedly “dead” legacy system, and I suspect that would happen here, especially as the class-warfare crowd becomes rabidly fixated on anyone who uses the old tax code to pay less than 20%.
Likewise, at the other end of the scale, an awful lot of people pay nothing – or receive net refunds – under the current system, and they don’t really spend their days dreading the arrival of their 1040 EZ forms. It won’t take long for them to decide that paying 20% on everything over $12,500 plus a mortgage interest deduction isn’t a good deal.
It’s not likely that Perry’s opt-in flat tax would have a lot of takers outside of the middle class… which, of course, is where all the money is. That’s why the Left is forever trying to subdue them. That’s why the choke chain of the Alternative Middle Class was created to snare small businessmen. Maybe that’s the point Perry is trying to make.
There are lots of pro-growth provisions in the Perry plan that will set class-warfare dead-enders on fire. Besides offering that 20% tax rate to Evil Rich people the Left thinks should be taxed at something closer to 100%, and wiping out all the social engineering carrots and sticks built into our absurd tax code, Perry would “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.” The Left has invested a great deal of effort in convincing the middle class to incorrectly believe they wouldn’t benefit from capital gains tax cuts.
Liberals are certain to portray the end of the death tax as a sop to old-money aristocracy, although they’ll have to make do without the point man from Big Government’s last great class-war struggle to eat the dead, Rep. Anthony Weiner. And, of course, a lot of tax “expenditures” that cause welfare to dribble from a system that should be about efficiently funding a limited government will go away.
Perry’s medicine for out-of-control government spending incorporates the major ingredients of the Cut, Cap, and Balance Act – which, you may recall, was only a handful of Senate votes away from passage, and would likely be returning to a warmer welcome from a Republican Senate. Perry wants spending capped at 18% of GDP, which is consistent with the upper edge of tax revenues that can be extracted from a healthy economy over the long term. Anything over 18% causes the economy to contract, and begins the tediously familiar death spiral of higher tax rates sucking the lifeblood from a collapsing private sector. This is coupled with a Balanced Budget Amendment, in which he would give the government until 2020 to get rid of all the red ink.
Pointedly, he would “fix the regulatory excesses of the Obama Administration and its predecessors” by freezing all pending federal regulations, and auditing everything written into the books since 2008. Repeal would be assured for ObamaCare, the Dodd-Frank disaster, and Section 404 of the Sarbanes-Oxley Act (which has dropped enormous compliance costs on the business sector.)
Flat tax guru Steve Forbes has endorsed the Perry plan (and, in fact, the Perry candidacy.) He lauded its “radical simplicity,” although it seems much less radically simple – for better or worse – than a certain other candidate’s 999 Plan. Some of its provisions, especially the flat tax opt-in, feel more like a hedged bet than a bold call for reform. He’s dreaming if he thinks any of his pulled punches will mollify the class warfare crowd. Still, there are some great pro-growth ideas here, some of which have been advocated by other candidates. Perry will need to persuade voters that the total Cut, Balance, and Grow Plan is greater than the sum of its parts, and he’s the only candidate who can introduce it to a Washington that might not like to hear about it.