Commentary Magazine


Mixed Reviews for Perry’s Optional Flat Tax

Rick Perry just gave a red-meat-heavy speech on his “Cut, Balance and Grow” plan (which he also outlined this morning at the Wall Street Journal). But he was light on specifics. Here’s what we know about the plan so far:

  1. He’s proposing an optional flat tax of 20 percent, allowing Americans to keep their current income tax rate if they prefer.
  2. The new rate “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.”
  3. His plan abolishes the death tax.
  4. It lowers the corporate tax rate to 20 percent.
  5. Eliminates the tax on Social Security benefits.
  6. Caps federal spending at 18 percent of GDP, freezes federal wages and hiring.
  7. Allows younger workers the option of placing their Social Security contributions in private accounts.

Perry also touched on Medicare and Medicaid reform (he proposes raising the age of Medicare recipients and handing over Medicaid to the states, among other ideas). It was a good speech. Perry was articulate. The question is whether he’ll be able to make the same arguments off-the-cuff. Based on Perry’s Q&A with the New York Times this morning – in which, as Jonathan wrote, he veered off once again into birtherism while trying to sell his plan – this is definitely a concern.

As for the substance of the plan itself, there is a lot for conservatives to love. James Pethokoukis writes:

It creates a flattish consumption tax that reduces penalties on work, saving, and investment. That could add at least a half percentage point to long-term GDP growth going forward with an immediate boost from reduced business/investor/consumer uncertainty. And if it does kill the healthcare tax exclusion, that would go a long way toward creating a consumer-driven healthcare market.

But of course it also has its faults. The most obvious one at the moment is the fact that it’s “optional” – Americans can choose to keep their current income tax rate over the flat tax. Pethoukis calls this “gimmicky.” Not only that, it seems to contradict Perry’s key argument that his plan would simplify the current tax system. Adding another element to the current system could actually make it more complicated.