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Rick Perry’s 20% Flat Tax Plan – An ‘Opt Out’

From the editorial pages of the Wall Street Journal:

My Tax and Spending Reform Plan

Individuals will have the option of paying a 20% flat-rate income tax and I’ll cap spending at 18% of GDP.

OCTOBER 25, 2011

The folks in Washington might not like to hear it, but the plain truth is the U.S. government spends too much. Taxes are too high, too complex, and too riddled with special interest loopholes. And our expensive entitlement system is unsustainable in the long run.

Without significant change quickly, our nation will go the way of some in Europe: mired in debt and unable to pay our bills. President Obama and many in Washington seem unable or unwilling to tackle these issues, either out of fear of alienating the left or because they want Americans to be dependent on big government.

On Tuesday I will announce my "Cut, Balance and Grow" plan to scrap the current tax code, lower and simplify tax rates, cut spending and balance the federal budget, reform entitlements, and grow jobs and economic opportunity.

The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate.

So this plan does not scrap the current tax code.

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.

So this plan still punishes ‘the rich’ who make more than $500,000. And how long will it be before Congress lowers that cut off to $250,000, and then lower still?

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.

But ‘the rich,’ with their accountants and tax lawyers

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.

The US corporate tax rate is actually the highest in the world, since Japan has recently lowered theirs. (Japan’s top corporate tax in 2011 is now fixed at 30%.)

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.

There really aren’t that many loopholes left. And those that are left often do help the industries that they address, which is usually a good thing.

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.

We will eliminate the tax on qualified dividends and long-term capital gains to free up the billions of dollars Americans are sitting on to avoid taxes on the gain.

This will go over big with the OWS crowd. But in reality everyone with a 401K has to pay capital gains tax.

All of these tax cuts will be meaningless if we do not control federal spending. Last year the government spent $1.3 trillion more than it collected, and total federal debt now approaches $15 trillion. By the end of 2011, the Office of Management and Budget expects the gross amount of federal debt to exceed the size of America’s entire economy for the first time in over 65 years.

Under my plan, we will establish a clear goal of balancing the budget by 2020. It will be an extremely difficult task exacerbated by the current economic crisis and our need for significant tax cuts to spur growth. But that growth is what will get us to balance, if we are willing to make the hard decisions of cutting.

We should start moving toward fiscal responsibility 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. My plan freezes federal civilian hiring and salaries until the budget is balanced. And to fix the regulatory excess of the Obama administration and its predecessors, my plan puts an immediate moratorium on pending federal regulations and provides a full audit of all regulations passed since 2008 to determine their need, impact and effect on job creation.

ObamaCare, Dodd-Frank and Section 404 of Sarbanes-Oxley must be quickly repealed and, if necessary, replaced by market-oriented, common-sense measures.

America must also once and for all face up to entitlement reform. To preserve benefits for current and near-term Social Security beneficiaries, my plan permanently stops politicians from raiding the program’s trust fund. Congressional IOUs are no substitute for workers’ Social Security payments. We should use the federal Highway Trust Fund as a model for protecting the integrity of a pay-as-you-go system.

Unfortunately, raiding the Social Security trust fund is not the biggest problem with entitlements. The problem is we cannot afford what we have committed to. And Gov. Perry does not address that. And Social Security and Medicare/Medicaid are the real problems driving up the deficit.

Cut, Balance and Grow also gives younger workers the option to own their Social Security contributions through personal retirement accounts that Washington politicians can never raid. Because young workers will own their contributions, they will be free to seek a market rate of return if they choose, and to leave their retirement savings to their dependents when they die.

Fixing America’s tax, spending and entitlement cultures will not be easy. But the status quo of byzantine taxes, loose spending and the perpetual delay of entitlement reform is a recipe for disaster.

Cut, Balance and Grow strikes a major blow against the Washington-knows-best mindset. It takes money from spendthrift bureaucrats and returns it to families. It puts fewer job-killing regulations on employers and more restrictions on politicians. It gives more freedom to Americans to control their own destiny.

His plan to cut spending and to limit government spending to 18% of the GDP may do this. But his tax plan, if it is revenue neutral and doesn’t lower taxes, really doesn’t.

And just as importantly, the Cut, Balance and Grow plan paves the way for the job creation, balanced budgets and fiscal responsibility we need to get America working again.

Well, almost anything is better than what we have now. And this actually could pass through a Republican-controlled Congress.

This article was posted by Steve on Tuesday, October 25th, 2011. Comments are currently closed.

One Response to “Rick Perry’s 20% Flat Tax Plan – An ‘Opt Out’”

  1. tranquil.night says:

    Guess I should’ve checked all the headlines as you had the leap on this plan Steve.

    “Unfortunately, raiding the Social Security trust fund is not the biggest problem with entitlements. The problem is we cannot afford what we have committed to.”


    Dissatisfied with the lack of substance in the public debates, the Tea Party arranged a long-form discussion between Cain and Gingrich specifically focussed on Entitlement reform, with Paul Ryan’s plan set as the launching point for those discussions. I’d like to see Perry get in on those talks, or at least be mindful of the ideas for structural reform that emerge, because there’s no reason to shy away from them either.

    Again, this is why with the Tea Party in the mix, politics have been turned on their head. In 2008, conventional wisdom would’ve dictated that even presenting plans like Perry’s or Cain’s is too politically toxic. Now in a flash all the sudden it’s the anointed Mittoast whose on the outside of the poll momentum and probably is going to have to consider stronger, more Conservative propositions to remain palatable with where the central energy of the voting base is. And yet still, the activists are not letting go of the other planks of our platform even while the ball gets moving on all these big issues. OWS, Soros, the Left, even with all their crony assets, can only dream of carrying this particular political power that is unique and alive in the Conservative grassroots.

    Dynamic. It’s very exciting because not only are these reforms salvational for the country, as Rush said – but both wings of the Washington establishment are absolutely mortified of them getting any fresh breath of air in the public narrative, which really tells you that we’re hitting at the core of how they entrench their interests and power in the State apparatus.

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