LEE’S SUMMIT, October 25, 2011 – Governor Rick Perry introduced his flat tax option with great props but a strong lack of conviction. If you believe in a Flat Tax, as Steve Forbes did, you push it completely take your lumps, explain it, educate people, and make your point understood. To provide an option for it makes it truly the worst of both worlds.
According to the Perry website on Cut, Balance and Grow it says “By implementing a simple and optional flat tax that will allow Americans to file their taxes on a postcard, up to $483 billion a year could be saved by American families and businesses in reduced compliance costs alone.” That is fundamentally not true other than in Political rhetoric.
You can use a revision of today’s tax code (it is revised nearly every year so why assume it won’t be in a Perry administration) or you can use the 20% flat tax. Which one would you use? Well, unless you know your tax tables and understand your deductions and come up with the tax you owe under the new plan, you’ll have nothing to base your decision on. So that means you’ll have to figure out your own tax under both systems. Where is the simplicity?
Governor Perry makes assumptions that contradict his opening paragraph: “The new flat individual income tax system will be designed so that federal individual income tax receipts will be equal to approximately 8% of the country’s gross domestic product (GDP), in line with the historical share of federal individual income tax revenue relative to the size of the economy”
Wait, if it is “optional” then how can he assume that it will remain with the historical trends? If I have to pay more the old way – I’ll use the new way (no new revenue). If I can pay less by staying with the old tax system – I’ll use the old tax system: I miss the logic behind his assumption.
His plan boils down the following headlines in his website:
FIX THE TAX CODE
- Institute Individual Flat Income Tax Rate of 20%
- Allow Individuals to Choose Between Existing Tax Code or New Flat Tax System
- Preserve Deductions for Mortgage Interest, Charity, and State/Local Taxes
- Eliminate Tax on Social Security Benefits
- No Federal Sales Tax or Value-Added Tax
- Eliminate Tax on Qualified Dividends and Long-Term Capital Gains
- Eliminate the Death Tax
- Eliminate Corporate Loopholes and Special-Interest Tax Breaks
- Reduce Corporate Income Tax Rate to 20% to Enhance American Competitiveness
- Enhance American Competitiveness by Transitioning to a Territorial Tax System
- Allow Locked-Up Overseas Capital to be Brought Back to the U.S. at a Reduced Tax Rate
The tax portion of this plan seems to have some merit, but his personal income tax design is like trying to have each foot in two different boats. Pretty soon he is going to be neck deep in the water. Not a good plan.
The idea of eliminating Social Security taxes is a reasonable idea because it falls in with the idea that earnings should only be taxed once. We were taxed as we paid for Social Security, why should we be taxed on that money again when we retire.
Perry does it again when he talks about “Eliminate Tax on [Qualified] dividends and Long-Term Capital Gains”. He would like to cut the tax perhaps, but doesn’t think he can actually do it? Or is it that he’d like to get the votes from those who don’t like it, but are willing to gamble that he’ll not change it too much?
As a fiscal conservative I have a core belief; if the government gets too much money, it will grow and spend more money. So if Perry is trying to get people like me to rally behind his plan – like so many did with Herman Cain’s 9-9-9 plan, his bold plan is not so bold.
Read Perry’s plan here.
FIX THE FEDERAL REGULATORY SYSTEM
- Immediate Moratorium on All Pending Regulations
- Full Audit of Every Regulation Passed Since 2008
- Federal Regulations Automatically Sunset Unless Congress Renews Them
- Institute Annual Regulatory Budget for Each Agency
- Create a Searchable Public Database with All Regulations Currently in Force
This section of the Perry plan seems to make sense at first blush. No one in small businesses enjoys the high proportion of the cost they bare compared to large corporations. To this end Perry has a nice graphic that shows that Companies with less than 20 employees pay on the average $7,647 per year on compliance costs. Yet large corporations with more than 500 employees only pay $5,282 per year.
If you are trying to start a small business and you are trying to comply with all the rules and regulations, Federal Regulations serve as a huge entry barrier. Small startups and entrepreneurs want to put their capital to work, not give over $7,000 to the federal government in order to comply.
PRESERVE SOCIAL SECURITY FOR ALL GENERATIONS OF AMERICANS
- Preserve Benefits for Current and Near-Term Social Security Beneficiaries
- Protect the Social Security Trust Fund
- Give Younger Workers the Opportunity to Own Their Social Security Contributions
- Gradually Increase the Full Retirement Age Due to Longevity Increases
- Institute Blended Indexing to Improve the Solvency of Social Security
- Allow State Employees to Opt Out of Social Security
The fact is that Social Security is broke and it needs to be fixed. When FDR put it in place we had 42 workers paying into the system to support 1 beneficiary. Today there are only 3 workers for every beneficiary – so plan to give up 1/3 of your income to support a Social Security beneficiary. They put money into the system. They did their part. The federal government used the money and / or invested it poorly so it was squandered. It is a shame. It is also a current fact and nothing will fix it but hard work.
If it continues to be the third rail of American politics, it will be also the inscription on the tombstone of the United States of America. It has to be fixed.
REFORM MEDICARE AND MEDICAID TO IMPROVE HEALTH CARE
- Reform Medicare to be Sustainable for the Long-Term
- Gradually Raise the Eligibility Age for Medicare
- Empower Consumers While Reducing Fraud and Waste
- Return Medicaid Responsibility to States to Increase Health Care Quality and Access
Here Governor Perry loses me – and if you are still reading I’m truly impressed. These are nice political platitudes that put together with Social Security plans just leave me very lukewarm. I can’t argue with what he says, but I’ve heard this so many times before that it reads more like a compilation of “what do people want to hear?” words.
REPEAL JOB-KILLING LEGISLATION
- Repeal ObamaCare
- Repeal Dodd-Frank
- Repeal Onerous Sarbanes-Oxley Regulations on Small Businesses
Obviously I’m going to agree with his plan to repeal ObamaCare, it is falling apart now and it will be an albatross around the neck of the U.S. economy so it has to be removed. Dodd-Frank is the wrong law, targeted at the wrong problem, enacted by politicians who caused the problem in the first place.
Barney Frank is one of those people that benefited greatly and personally from the moves of Fannie Mae to own the Home Mortgage business in the United States that started us down the path to the 2008 financial meltdown.
Senator Dodd has his hands dirty as well with Fannie Mae, Freddie Mac and some personal loans that he received as a VIP that you and I could not get. He very easily deflected the attention from himself and Congressman Frank and placed the blame on Wall Street and the banks – banks we had just bailed out whether they wanted the money or not, and the banks who did not lend the money as it was hoped by Hank Paulson and George Bush and later by Bernanke and Obama.
At the end of plan Governor Perry talks about the most important part of the plan:
BALANCE THE BUDGET
- Demand a Balanced Budget Amendment that Does Not Raise Taxes
- Cap Federal Spending at 18% of GDP and Balance the Budget by 2020
- Reduce Non-Defense Discretionary Spending by $100 Billion in the First Year
- Require Presidential Signature on Every Federal Budget
- Institute Automatic Government Shutdown Protection
- No More Earmarks
- Require Emergency Spending to be Spent Only on Emergencies
- End Baseline Budgeting and Require Common-Sense Scoring Rules
- PAYGO for New Federal Programs
- Freeze Federal Civilian Hiring and Salaries Until the Budget is Balanced
- No More Bailouts
Governor Perry is looking heavily at passing a balanced budget amendment as part of his solution. It must be important because he put it at the top of the list; I hope he wasn’t building up to “no more bailouts” because that’s not at the root of the problem
Putting a cap on federal spending at 18% of GDP sounds great. However, I was taught in a great class at Michigan University to be careful about putting such measurements in place with this very severe warning: Tell me how you’ll measure me, and I’ll tell you what stupid things I’ll do to look good.
So we cap spending as a percent of GDP, that’s easy – I’ll redefine the GDP measure just like we redefined the Unemployment numbers when we didn’t like what they looked like. We didn’t solve the problem, but we sure make it look better.
All in all, I’m truly not impressed with Governor Perry’s plan. I was hoping for a “bold” plan from him, and I get milquetoast. Note the same.
The Lee’s Summit Conservative