by Lone Shark
Governor Rick Perry took to the airwaves yesterday with what some are labeling his “20-20” tax plan, and based upon this author’s first impression, the plan is likely to spark renewed interest in Perry’s presently stalled presidential campaign.
Unlike Herman Cain’s savvily marketed “9-9-9” tax reform plan, Perry’s economic plan is “double-barreled” in the sense that it’s a tax reform plan coupled with serious entitlement reforms as well.
The plan calls for an optional 20% across the board flat income tax rate with a healthy $12,500 exemption per family member; it caps federal spending at 18% of GDP, and it also contains some absolutely necessary Social Security and Medicare reform measures including raising the retirement age for Social Security and Medicare, it changes the indexing formula for Social Security to inflation instead of wages (a proposal originally made by Fred Thompson during the ’08 campaign), and it allows younger workers the option to opt-out into private retirement accounts.
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From the Americans for Tax Reform website, here’s a summary of the key tax personal and corporate tax provisions:
Optional Flat Personal Income Tax
- Optional system for those who want to switch over: if you like your tax code, you can keep it. This will be a popular option for low income filers, especially.
- 20 percent flat rate on all personal income. Details yet to be specified here.
- 0 percent rate on long-term capital gains and qualified dividends
- Standard deduction of $12,500 per person (e.g., $50,000 for a family of four)
- Itemized deduction alternative for families making less than $500,000: mortgage interest, state and local taxes, charitable contributions only
- 20 percent flat rate on all business profits for all business forms: corporations, S-corporations, partnerships, LLCs, and sole proprietorships
- Full business expensing of all new business purchases
- Research and development tax credit retained
- One-year repatriation holiday of 5.25%, followed by territoriality
- Eliminates all business deductions and credits not part of a consumption base
Dividends from 401k plans are also exempt under the plan.
If all of these reforms were accomplished within a single term, their cumulative economic impact would be enormous, and it would set the stage for additional entitlement reforms and serious spending cuts that would begin to change our unsustainable fiscal trajectory. While you can certainly quibble with some of the Perry plan’s details, if his plan was ultimately enacted into law, there’s no denying that it would certainly be progress in the right direction.
Perry’s Plan is expected to directly compete with Herman Cain’s popular “9-9-9” plan, and I hope a robust debate about the merits of the two plans will begin immediately.
I’ll be happy to get the ball rolling right here. With all due respect to Herman Cain, the implementation of a federal sales tax is a non-starter without the concomitant repeal of the 16th Amendment Federal Income Tax. Cain’s 9-9-9 plan would be a fine proposal were we devising a tax system for a start-up nation-state from scratch, but that’s obviously not our present circumstances. We are not only dealing with not only a burdensome federal tax code that half of our political class have sworn to defend, we are also dealing with an increasing tax burden at the state level whose increasing debt obligations will probably result in future sales tax hikes as well.In all likelihood, Cain’s 9-9-9 plan is not a politically viable one because it would draw majority opposition from both sides of the aisle. A federal sales tax would not only be relentlessly demagogued as regressive by Democrats, it would also be principally opposed by those who understand that the enactment of a new revenue source for the federal government is likely to remain a permanent revenue source for government whose rate can all too easily be increased with a change in the political winds.
Quite frankly, with all of the tax and fiscal hawks residing out there in the Tea Party, i’m surprised that the mere suggestion of a federal sales tax and its unintended consequences hasn’t spurred far more criticism of Cain’s 9-9-9 plan thus far. While Cain certainly deserves credit for putting a significant tax-restructuring proposal out there, conservatives need to seriously consider the ramifications of what a new federal sales tax would mean for our economy long after it has been enacted.
Perry quite comfortably laid out his plan yesterday to Larry Kudlow, it’s worth 10 minutes of your time to watch; and conservative radio titans Rush Limbaugh and Mark Levin were also effusive in their praise of the plan as well. But can Perry win back the conservatives who abandoned him after his lackluster debate performance at Presidency 5 on the strength of his tax reform plan alone?
