Earlier today, I sat in on a conference call to hear more about the Cut Balance and Grow plan from Rick Perry, which features an optional flat income tax for personal income, a 20% corporate tax and a shift to a “territorial” system, and a one-time repatriation rate of 5.25%. Perry outlined his plan in the Wall Street Journal last night:
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.
My plan restores American competitiveness in the global marketplace and provides strong incentives for U.S.-based employers to build new factories and create thousands of jobs here at home.
First, we will lower the corporate tax rate to 20%—dropping it from the second highest in the developed world to a rate on par with our global competitors. Second, we will encourage the swift repatriation of some of the $1.4 trillion estimated to be parked overseas by temporarily lowering the rate to 5.25%. And third, we will transition to a “territorial tax system”—as seen in Hong Kong and France, for example—that only taxes in-country income.
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. That is why Cut, Balance and Grow also phases out corporate loopholes and special-interest tax breaks to provide a level playing field for employers of all sizes.
To help older Americans, we will eliminate the 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 plan also includes an automatic sunset term for regulation, requiring Congressional renewal for all federal regulations, and forcing a “regulatory budget” onto agencies to limit their activities. Perry’s team also pledged to treat the Social Security trust fund like the highway trust fund so that Congress can no longer raid it, and hinted at some level of privatization.
The campaign talked in broad strokes about entitlement reform, but not in detail, although it will be based on block-grant funding for Medicaid rather than top-down management. They want a “long, open national debate” on reforming Medicare, rather than the closed process utilized by Democrats and Obama on ObamaCare. Raising the retirement age will be part of that process, as will be the usual “waste fraud and abuse” hunting that is a perennial pledge on entitlements.
Perry will also provide “automatic government shutdown insurance” that will take seniors and the military out of the line of fire on budget battles. Shutdowns would revert government spending to levels of the previous budget.
- [Questions garbled] – Budget balance by 2020 is in line with other conservative plans; took many years to get this out of balance, will take a few years to correct. BBA will not come into play immediately. Tax exemptions could amount to $50K for a family of four, but economic growth will result in more taxpayers.
- How do we get this bill through Congress? — “Now is not the time to be timid. … Now is the time where you take bold steps.” Don’t want just “a wink and a nod” at reform, like with other plans.
- Why 20% when Forbes’ plan was 17%, and what are the income thresholds before tax liabilities occur? — We are proposing to preserve deductions for mortgage interest, charitable contributions, and state and local taxes, where Forbes didn’t. Liabilities start at $12,500 per filer/dependent.
- Doesn’t optional system still enable “crony” lobbyists? — People will probably shift rapidly to the 20% flat tax, so “we’d rather give people the option” and then think about phasing out the current system.
- Corporate side – are we flattening that, too? — Besides getting credit for capital investments and R&D, all other deductions will be eliminated, and businesses will be taxed at 20% across the board. “We want to send the message that America is open for business.”
I’m encouraged by this plan. I think there are a couple of points to quibble over — I’m not a fan of making the flat tax optional on the personal side, as I think we have enough problems with one system, let alone two. I agree that this issue will mainly take care of itself, though, as people flock to a system that’s simpler while still maintaining their mortgage interest deductions. Having the exemptions for a family of four reach $50K keeps Democrats from demagoguing it as an attack on the middle class, too. I’m most excited about flattening the corporate tax rate, where Congress creates the most mischief.
If anything could be a game changer for Perry, this could be it — assuming he can follow this up with better and more positive debate performances. But even if it’s not the game changer Perry needs, this plan does look like the kind of game-changer that Republicans can use to keep the focus on the economy in 2012.
Update: The Club for Growth likes the Perry plan — a lot. They also take a swipe at Romney:
“Rick Perry’s plan for tax reform would be massively pro-growth,” said Club for Growth President Chris Chocola. “A Flat Tax like the one proposed by Perry would unleash years of economic growth if it is passed into law. Furthermore, eliminating the tax on dividends and capital gains would immediately add trillions of dollars in new wealth to the economy, benefiting all Americans. Perry clearly understands that revitalizing the economy should start with a complete overhaul of a tax code that has nearly choked economic growth to death. Conservatives looking for a champion to carry the banner of a pro-growth tax reform will surely rally behind this bold proposal.”
“I continue to be disappointed that Governor Romney has yet to embrace a flat or fair tax,” added Club for Growth President Chris Chocola. “He would be wise to avoid using class warfare when comparing his current proposals to those of Governor Perry or Herman Cain. The Club for Growth is looking for bold leadership on tax reform from the Republican nominee – not demagoguery or platitudes.”
The question about conservatives rallying to the plan is secondary, at the moment, to whether they will rally to the man.