In an op-ed piece in the Wall Street Journal Perry outlines his economic plan which includes an flat tax alternative, capping federal spending at 18% GDP, tossing out the burdensome regulation that is choking the life out of the economy, and a few other things.
Without significant change quickly, our nation will go the way of some in Europe: mired in debt and unable to pay our bills. President Obama and many in Washington seem unable or unwilling to tackle these issues, either out of fear of alienating the left or because they want Americans to be dependent on big government.
On Tuesday I will announce my “Cut, Balance and Grow” plan to scrap the current tax code, lower and simplify tax rates, cut spending and balance the federal budget, reform entitlements, and grow jobs and economic opportunity.
The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.
This simple 20% flat tax will allow Americans to file their taxes on a postcard, saving up to $483 billion in compliance costs. By eliminating the dozens of carve-outs that make the current code so incomprehensible, we will renew incentives for entrepreneurial risk-taking and investment that creates jobs, inspires Americans to work hard and forms the foundation of a strong economy. My plan also abolishes the death tax once and for all, providing needed certainty to American family farms and small businesses.
Perry goes on to say that he will lower corporate tax rate from the second highest in the world to initially 5.25% in order to encourage the estimated $1.3 trillion of overseas money to come back to the United States. Then the rate will rest at a competitive 20%. Capital gains taxes will be eliminated “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.”
Repealing and, if necessary, replacing ObamaCare and the Dodd-Frank financial
reform disaster law are also a part of Perry’s plan.
Any serious economic plan must address entitlement reform.
America must also once and for all face up to entitlement reform. To preserve benefits for current and near-term Social Security beneficiaries, my plan permanently stops politicians from raiding the program’s trust fund. Congressional IOUs are no substitute for workers’ Social Security payments. We should use the federal Highway Trust Fund as a model for protecting the integrity of a pay-as-you-go system.
Cut, Balance and Grow also gives younger workers the option to own their Social Security contributions through personal retirement accounts that Washington politicians can never raid. Because young workers will own their contributions, they will be free to seek a market rate of return if they choose, and to leave their retirement savings to their dependents when they die.
As Perry rolls out his new plan it should buy him some media attention to help capture some lost support Republican primary voters. Of course, he will have to detail and defend his plan as confidently as Cain does 9-9-9 if he wants to fully capitalize on its merits. If I were to ask Perry one thing about his plan I’d ask him what gap in tax revenue will, at least in the short-term, be realized if most of the wealthiest Americans opt for the 20% flat tax instead of their current tax rate – and how does he plan on filling that gap?
Update: Rick Perry explains his plan to CNBC
In an interview with CNBC Perry is asked a similar question to the one I mentioned above. What happens to the deficit if the wealthiest Americans all elect the 20% flat tax option? Here is Perry’s response:
Towards the end of the video the CNBC hosts were discussing whether it is ridiculous to add a whole new level of rules to the already overly complicated tax code. A flat tax as an option is not a new idea, but it is one that has some flaws to it. Obviously it makes it difficult for the federal government to project revenues which will cause more deficit problems – at least until spending is seriously scaled back, which Perry promises to do. However, Perry said that he is thinking “long-term.” The short-term benefit to his “long-term” thinking is that the job creators will have more money to invest in America thus creating more jobs and opportunity for all Americans. The long-term solution to the tax code is to eventually do away with the current system as more opt for the flat tax plan. Not having to spend money on a team of accountants to figure out the best way to file your company’s tax return will free up billions annually in wasted resources in America. As Perry stated before with a simple flat tax system you could file your tax return on a postcard.