Gingrich vs. Perry. Whose Tax Plan is More Effective?

   Bookmark and Share  On Tuesday, former Speaker Newt Gingrich was quick to compare his flat tax proposal to that of Texas Governor Rick Perry’s flat tax plan which was released earlier in the day.

In his comparison, Newt convincingly argues that his plan is better than Perry’s.  Gingrich is also quick to point out that while the flat tax concept is something which Perry only recently decided to run with, he has been an ardent supporter of flat tax reform since as far back as 1997 when he stated that “There are things I would like to do like a flat tax with virtual elimination of the IRS.”

The biggest distinguishing aspect of Gingrich’s and Perry’s flat tax plan is the rates which the two men arrive at.  While Perry set’s a high 20% flat rate for both corporate and personal income taxes, Newt Gingrich proposed two separate rates and each one is lower than Perry’s.  In Gingrich’s plan, which predates Perry’s, the Speaker calls for a 12.5% corporate flat tax and and a 15% personal flat tax rate.

Other distinguishing features of the two plans involve capital gains taxes, deductions for charitable giving and home ownership, and payroll taxes.

While Gingrich’s optional flat tax system seeks to eventually replace payroll taxes with personal accounts that  yield better results. Perry’s plan does not change the payroll tax at all.  And on the issue of capital gains and  deductions for charitable giving and home ownership, Newt argues that Rick Perry is adopting a liberal class warfare approach that only gives such deductions and eliminates capital gains taxes on  those making $500,000 a year or less.  Newt’s plan fairly offers it to everyone. [For the actual comparison and a list of references demonstrating Newt’s longstanding committment to a flat tax, see the table and lists that the Gingrich campaign provided, at the bottom of this post]

While Perry’s plan is most definitely a good one, and touches on a few things that Newt’s does not seem to, such as abolishing the tax on Social Security benefits, Newt’s plan seems to benefit economic growth more than Rick Perry’s does. Much of the reason for that is simply based on the fact that Gingrich’s rate is much lower than Perry’s.  In addition to that, Newt Gingrich has offered significant entitlement reforms that go far beyond anything that Perry has toyed with.  Together, those two factors alone make Newt Gingrich’s plan stronger than Rick Perry’s.

In a previous post, White House 2012 gave Perry’s plan which he calls Cut, Cap and Balance, two thumbs up.  Perry’s plan still gets both thumbs up.  However; the plan which Newt Gingrich proposed long before Rick Perry put his proposal out,  gets three, not two thumbs up.

Meanwhile both men have done better than all their opponents on this issue.  For his part, Mitt Romney offered a 59 point plan that included some tinkering with the tax code, but failed to realize that he is tinkering with a tax code that is defective and needs to junked.  And while his plan is a solid and accetable program of pro-growth policies, it fails to acknowledge the simple reality that we will be much better off scrapping the existing tax code instead of tinkering with it.

As for Herman Cain,  I am no fan of his hybridized version of a flat tax and a little disappointed in Cain’s evolution on this issue.

Cain was initially calling for a Fair Tax, which is more accurately described as a national sales tax.  The one day he suddenly turned it into 9-9-9, a plan that offers a 9% corporate tax rate, a 9% personal income tax rate, and a 9% national sales tax.  That is a plan I cannot support simply because I refuse to give the federal government the authority to play with a new tax…..the sales tax.

Of course Gingrich and Perry and even Romney may still change their own plans as this campaign plays out, but so far, Gingrich and Perry are at least on the right path to the right reforms and currently, I find Gingrich’s path to be the most prosperous one for the nation.  The big questions now is, which one can best sell their plan and which one can use it in a way that will get their campaigns moving in the right direction and win them the votes they need to become the Republican presidential nominee?

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The following was provided by the Gingrich presidential campaign

Let’s Bump Plans: A Comparison of Gingrich and Perry’s Flat Tax Plans

Gingrich’s Plan Far Bolder than Perry’s Plan and Will Lead to Far More Robust Job Creation and Capital Investment in United States

Gingrich Perry Verdict: Gingrich Plan Better
Rate 15% 20% Gingrich has advocated for several years an optional flat tax rate of 15%, which when coupled with Gingrich’s bold entitlement and regulatory reforms, will usher in another era of booming economic growth and new, higher-paying jobs. The Perry rate of 20% is higher than the 17% that Steve Forbes proposed in his 1996 and 2000 presidential campaign.
Who Gets to Make Deductions for Charitable Giving and Home Ownership?? Everyone Families making less than $500,000/year By creating two separate classes of taxpayers, the Perry plan buys into the same class warfare that characterizes the Obama and Romney economic plans. The fact that there are still two brackets – even under a supposed “flat tax” plan – calls into question whether this is really a flat tax at all.
State and Local Tax Deductions Not deductible in optional flat tax plan Deductible in optional flat tax plan The Gingrich plan has a lower rate so less need for state and local deductions.  The deduction is a federal subsidy for states to adopt higher state and local taxes. Removing the subsidy would lead states to reduce state and local taxes, or adopt their own flat tax reforms. The Perry plan erodes states’ competitive advantages by making state and local taxes deductible in his optional flat tax plan.
Who Benefits from Elimination of Capital Gains Tax? Everyone Depends whether capital gains is long term or short term.  Perry’s plan eliminates cap gains only for long term. The Gingrich plan maximizes the capital investment and job creation that will accompany the elimination of this tax. The Perry plan only goes halfway, and by levying up to 35% tax on short-term capital gains, it will discourage investment, venture capital, and new jobs creation.
Corporate Income Tax 12.5% 20% The Gingrich plan will create a boom of new American entrepreneurship by dramatically cutting the corporate tax rate to one of the lowest in the developed world. The Perry plan relies upon a short term “tax holiday,” then only drops the corporate tax rate to 20% — only average in the developed world, and still over 20% higher than our closest economic competitor Canada, which has a rate of only 16.5%.  Gingrich rate makes U.S. more competitive than Canada.
Payroll Taxes Eventually replace payroll tax with personal accounts, financing better results No change in existing payroll tax Gingrich supports personal savings investment and insurance accounts that would eventually be expanded to finance all of the benefits now financed by the payroll tax, allowing that tax ultimately to be phased out altogether.
Earned Income Tax Credit (EITC) and Child Tax Credit Both the EITC and the Child Tax Credit are preserved in Gingrich’s optional flat tax system. No information provided. Preserving the EITC and Child Tax Credit are critical to ensure that the optional flat tax system does not unfairly target low-income Americans. Gingrich passed the first child tax credit as Speaker in 1997, and will preserve this credit and the EITC under his optional flat tax system.
Record in Achieving Dramatic Jobs and Economic Recovery at the National Level? Yes. Substantial. See record at right. None. Speaker Gingrich’s Record (1995-1999):•    Eleven Million New Jobs
•    Four Straight Balanced Budgets for the First Time Since the 1920s.
•    Unemployment rate of 4.2%.
•    Federal Spending Held to the Slowest Growth Rate Since the Early 1950s (avg. of 2.9% a year).
•    Venture capital investments grew 500% in three years and manufacturing sector grew to 17.43 million jobs.
•    Bipartisan Welfare Reform that Lifted Millions from Poverty.
•    Over $400 Billion of National Debt Paid Down

Gingrich’s Advocacy of the Flat Tax Dates Back to 1997

From Item 2 in Gingrich’s 21st Century Contract with America (September 29, 2011)

All tax filers would be given the option to pay their income taxes subject to current income tax provisions or to pay under a lower single rate of taxation with limited deductions.

Release of Jobs and Prosperity Plan Upon Announcement of Campaign (May 13, 2011)
Move toward an optional flat tax of 15% that would allow Americans the freedom to choose to file their taxes on a postcard, saving hundreds of billions in unnecessary costs each year.

In his 2010 book, To Save America
To generate another lasting economic boom, we need fundamental tax reform, similar to that proposed by Steve Forbes. We should adopt the optional 15 percent flat tax with generous personal exemptions.

In his 2008 book, Real Change
This concept of an optional flat tax was developed by Steve Forbes when his flat tax campaign was undermined by criticisms that it would take away popular tax breaks. Steve Forbes and Stephen Moore have both proposed giving American taxpayers an opportunity to choose simplicity versus complexity and a single rate over a lot of deductions. They call it the free choice flat tax, and it’s an idea whose time has come.

In a 2008 National Review op-ed with Texas Representative Michael Burgess
An optional flat tax would save taxpayers more than $100 billion per year and reduce compliance costs by over 90 percent. This is a stimulus package that would have an immediate effect on our American economy.

In Foreword to Steve Forbes’ 2005 Book Flat Tax Revolution
I believe there is a real opportunity for a similar grass roots revolution imposing the flat tax on Washington. As people learn how much money and time they can save through a flat tax they are going to demand a simple alternative to the complexity and uncertainty of the Internal Revenue Service. As people spend hours in frustrating and seemingly endless paperwork and record keeping and preparing they are going to demand the freedom for their own time offered by a flat tax….As people watch the endless maneuvering of the lobbyists and the special interests they are going to demand the fairness of a flat tax.

As Speaker of the House in 1997
There are things I would like to do like a flat tax with virtual elimination of the IRS.

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