Presidential candidate Rick Perry details his tax plan during a speech… (Richard Ellis / Getty Images )
Rick Perry’s so-called flat tax plan would drain a titanic sum from the federal treasury and largely benefit wealthy taxpayers over those in the lower brackets.
That’s the upshot of an analysis of the plan by the nonpartisan Tax Policy Center. Perry last week unveiled the plan, which calls for an optional 20% flat tax on personal and corporate income but would also allow taxpayers to remain in the current system.
The plan was derided by some conservatives for not going far enough in eliminating the federal tax code completely. The two-track system would also force many taxpayers to calculate their liability under both systems, critics complained, adding complexity to an already labyrinthian endeavor.
But to Perry’s campaign that option stands as one of the plan’s greatest assets, because it would allow every taxpayer to pay the lowest tax possible. Perry would also eliminate taxes on investment income, a win-win-win.
A corresponding drag on government revenues seemed a likely outcome of such a system. And the findings of the Tax Policy Center, a combined effort of the Brookings Institution and the Urban Institute, suggests that would be the case.
If Perry’s plan were to be enacted, the government would see a revenue shortfall in 2015 of almost $1 trillion, a 27% drop, under current law, in which the Bush-era tax breaks expire. Under current administration policy, which calls for the tax cuts to stay in place, the plan would cost the government $570 billion.
That’s the point, small-government advocates say. But such a rapid downsizing would probably force radical changes to Medicare and Social Security — and perhaps to the Pentagon budget as well. It would also probably increase, not reduce, the federal budget deficit unless Perry made radical cuts.
Perry’s campaign takes issues with calculations such as these, telling the Washington Post that the tax cuts will spur enough economic growth to pay for themselves and not wreak budget havoc. (The Bush administration made a similar argument about its tax breaks. It didn’t happen.)
To give you a sense of how little revenue Perry’s plan would yield, consider that he wants to cap federal spending at 18% of gross domestic product. Right now, it’s about 25%. According to Howard Gleckman, an analyst at the center, Perry’s plan would yield just 14.6 % of GDP.
It’s also seems clear that the top tier of earners would see significant tax cuts while middle-class taxpayers would see some benefits, particularly if the Bush-era breaks expire. If they remain on the books, Gleckman says, then only about a third of those in that bracket would do better.
If the Bush tax breaks expire, those making $1 million or more would see an average tax cut of about $640,000. Those earning between $40,000 and $50,000 would see a cut of about $800, the report said. If the Bush tax breaks stay in place, then those in the $1 million and up bracket would see a cut of about $500,000, while those in that middle bracket would see a cut of about $200.