Gingrich: Hey, what about my flat-tax plan? Update: "Let's bump plans"

With all of the attention falling on Rick Perry and the rollout of his economic plan based on flat-tax reforms, many may have missed Newt Gingrich’s column in the Quad City Times that covers his own plan.  Gingrich has discussed his plan on a number of occasions, including the debates, and it does sound … oddly familiar.  In fact, it goes further than Perry’s plan does in reducing tax rates:

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The key to a robust recovery in job creation is to simplify the tax code and maximize capital investment, which begins with eliminating the capital gains tax and the death tax, reducing the corporate tax to 12.5 percent, and 100 percent expensing of all new capital equipment purchases.

These tax changes will liberate private capital to move quickly to the most productive investments, thereby accelerating economic growth. This is the opposite of the failed model practiced by the Obama administration, which is bureaucracies steering taxpayer stimulus dollars to allegedly “shovel ready” jobs and politically connected firms such as Solyndra.

At the same time as we liberate capital to create new jobs, we must liberate taxpayers from the IRS tax code, which is why my jobs proposals also call for an optional flat tax of 15 or less%. All workers and businesses would have the freedom to choose each year to file their income taxes either under the new flat tax option with limited deductions or under the current U.S. income tax code. Anyone who strongly favors a deduction or credit under the federal government’s current complex income tax system would have the choice to keep filing that way.

This optional flat tax system will create a new personal deduction for every adult of $10,000 to $12,000 (double for married couple), which would be above the established poverty level at $40,000 to $48,000. The current $1,000 tax credit for each child age sixteen or younger would also apply, as would the current earned income tax credit (EITC).

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Gingrich has been floating an optional flat tax for a couple of years, although it hasn’t had much traction as the former Speaker hasn’t gained much in polling.  Here’s a brief thumbnail comparison between the two plans:

  • Flat tax rate — Optional in both plans; Perry’s rate is 20%, Gingrich 15%
  • Exemptions — Perry: $12,500 per filer/dependent; Gingrich: $10-12K per adult, $1,000 per child (under 16), plus the EITC
  • Deductions – Both retain mortgage interest and charitable donations deductions
  • Corporate tax rate — Perry: 20% flat; Gingrich: 12.5% flat
  • Corporate deductions — Perry: Limited to R&D, 100% on capital investment; Gingrich: Limited to 100% on capital investment

It would seem that Gingrich’s plan would hit lower-income households a little sooner than Perry’s, but they would also have the option of staying with the current tax code (as they would with Perry’s plan, too).  The corporate and personal tax rates would be significantly lower under Gingrich’s plan, and that may make it more difficult for Gingrich to claim revenue neutrality without a huge jump in economic activity.  Both, however, share a remarkable amount of similarity.

So which is better?  I’d argue that both are good; I like Gingrich’s rates overall, but Perry’s exemption model for personal income would be an easier sale to lower income families.  Both beat the idea of adding a national sales tax.  Apart from the merits of each, I think Gingrich will have an easier time selling and defending his plan in debates and on the stump than Perry, who has struggled to respond to challenges.

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Let’s test the two with a poll for Hot Air readers.  Whose plan is more attractive?


Update: Gingrich tweeted out a challenge to Perry:

@GovernorPerry If u r going to bump plans w/ my friend Herman, then you can bump plans w/ me. Let’s compare flat taxes

Gingrich does just that on his website. The biggest difference is in the treatment of capital gains. Gingrich exempts all of it from taxation; Perry only does so for long-term capital gains. Perry’s plan — according to Gingrich — still taxes short-term capital gains at 35% in some cases. I’m not sure whether it’s all that good of an idea to exempt short-term cap gains from taxation; it would accelerate the kind of short-term profit-taking that has created plenty of problems for long-term growth strategies in corporate boardrooms and reward speculation, but I don’t think a 35% rate on those gains is a good idea, either.

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