The tax plan Rick Perry released last week is more a caricature than a policy proposal. The Republican presidential hopeful wants a flat tax, the elimination of the Estate Tax, and the elimination of the capital-gains tax. If you’re thinking that sounds like the kind of plan that would benefit the wealthy, you’re right.
Gov. Rick Perry’s proposal for an opt-in flat tax would primarily benefit the wealthiest Americans, according to a new analysis from the Tax Policy Center, a nonpartisan research organization. Compared with current tax policy, the plan would most likely reduce federal tax revenue by $570 billion, or about 15 percent.
The plan, released last week as part of Mr. Perry’s campaign for the Republican presidential nomination, allows taxpayers to calculate their personal income taxes under the existing tax code, which is progressive. But it also allows taxpayers to instead have their income taxed at a flat 20 percent rate. In this alternative system, long-term capital gains, qualified dividends and Social Security benefits would not be taxed, and only a handful of deductions would be allowed. Once a household chooses the new system, it cannot switch back.
Because no one would be forced to use the alternate system, Mr. Perry has said, no one would have to pay higher taxes (at least initially; presumably if a family’s income changes a few years after entering the plan, it may no longer be advantageous). Even so, the greatest beneficiaries of the flat-tax option — that is, the households that would be most likely to switch to this system — are far and away the highest earners.
McClatchy ran a chart that helps drive the point home nicely:
Unlike Herman Cain’s infamous “9-9-9” plan, Perry’s approach manages to cut everyone’s taxes*. There are, however, two catches. The first is that lower-income workers would get a very small cut, while millionaires and billionaires would be showered with another round of overly-generous breaks. It’s the Bush/Cheney strategy on steroids.
The second is that Perry won’t even try to pay for these massive tax breaks, and last week, his campaign argued he shouldn’t have to, since massive giveaways to the wealthy pay for themselves. In Grown-Up Land, this would, according to the Tax Policy Center’s analysis, add an additional $1 trillion to the debt in 2015, unless the costs are offset by brutal spending cuts that eliminate a large chunk of the federal government.
As for the larger takeaway from all of this, I think Bruce Bartlett has the right idea: “Mr. Perry’s plan cannot be taken seriously. I don’t think it’s meant to be, at least by those of us who don’t plan on voting in Republican primaries. It’s just a signaling device, telling the Republican faithful that they can trust Mr. Perry on the tax issue. Whether the plan makes any sense as a matter of policy is irrelevant to its purpose, which is to win him the Republican nomination.”
* Clarification: There are actually three catches. Bruce emails to remind that the Perry flat-tax plan is intended to only give 60% of taxpayers a cut, not 100%. The key detail is that taxpayers would have a “choice” — between the status quo and Perry’s new system — and that 40% would stand to benefit more from sticking with the existing tax structure, which would allow them to pay less. It’s one of the key reasons revenue shortfalls would be so dramatic.