In advance of his announcement of a flat tax proposal that would be the most dramatic tax reform in the nation’s history, Governor Rick Perry penned a summary of his proposal in this mornings Wall Street Journal .
Calling his proposal “Cut, Balance and Grow”, Perry hopes to balance the federal budget by 2020 and explains that his plan will abolish the death tax and give taxpayers the option to pay their current income tax rate or a new 20% flat tax that “preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and increase the standard deduction to $12,500 for individuals and dependents.” In addition to a 20% personal income tax, the Perry plan will also adopt a lowers the corporate tax rate to 20% and encourage the swift repatriation of nearly $1.4 trillionthat are currently hidden overseas by temporarily lowering the rate to 5.25%. The third part of his flat tax proposal includes what he calls a transition to a “territorial tax system”, that will only tax income earned in the United States.
Perry’s plan also calls for the elimination of the tax on Social Security benefits, a change that will supposedly boost the income of 17 million current Social Security recipients.
Governor Perry argues that without significant changes, our nations will go the way of Europe and be mired in a longterm debt crisis that will only get worse than the one we are currently experiencing and to help avoid that in addition to his new flat tax reform he attempts to cut, cap and balance federal spending habits by capping federal spending at 18% of our gross domestic product, banning earmarks and future bailouts, and passing a Balanced Budget Amendment to the Constitution. Additionally he will freeze federal civilian hiring and salaries until the budget is balanced and enact an immediate moratorium on pending federal regulations while also mandating a full audit of all regulations passed since 2008 to determine their need, impact and effect on job creation.
In what is a direct nod to his need to shore up those voters who are fearful about Perry’s past remarks about Social Security being a Ponzi scheme and as such, something which he would seek to eliminate, Perry’s plan touches entitle reforms, an issue which needs to be addressed and which Perry’s plan does not address enough. His proposal merely declares that he will preserve benefits for current and near-term Social Security beneficiaries, by permanently prohibiting “politicians from raiding” the Social Security trust fund.
That part of his plan is the most politically shallow aspect of his proposal. While he addresses that issue under the category of entitlements, he does not really address all of the entitlement reforms that are burdening the budget now and will bust it in the future. It is also worth mentioning that it is nearly, if not totally impossible for a President to vouch for the permanent inability of Congress to “raid” any fund. President’s come and go. The mentality that relies on political expediency among Congress lasts forever.
In general, Perry’s Cut, Cap, and Balance plan is one of the most comprehensive and promising plans to come down the pike in decades. One of the most, but the not only one. Others have proposed similiar flat tax based plans and one of the major differences between those other plans and Perry’s plan is that at 20%, Rick Perry sets his flat tax at a rate significanlty higher than most all others. That high 20% rate is probably the least attractive aspect of Perry’s plan.
Insofar as reform goes, it is much more solid than the light on detail, 9-9-9, hybridized flat tax proposal of Herman Cain and when it comes to the issue of reform, Perry’s proposal outshines even Ronald Reagan’s, Jack Kemp inspired, lower taxation, supply side economics plan of the 80’s. That plan simply adjusted the existing tax code and while it was in no way insignificant, Perry’s plan admits that the tax code is not worth tinkering with and needs to be scrapped and replaced by something that will allow America to be competitive in the modern global economy.
In a previous post I indicated that if Perry proposes a good flat tax plan and can market it properly and exploit the promise that exists in a flat tax from a politically strategic point of view, than he can reestablish himself as a frontrunner, or at least within reasonable striking distance of such a status. Now that the relative details of his plan are out, I can honestly say that despite my belief that his 20% rate is too high, if he can build his campaign around this plan and make it a focal point of the overall Republican nomination contest, than Rick Perry will have many fruitful themes to touch upon and run on. Now is just a matter of developing an effective campaign strategy and organization that can force the other candidates to run around his promising, conservative based economic plan and reforms.
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