Rick Perry unveiled the details of his flat-tax plan and overall economic package today in South Carolina. Give the man points for going big: it’s a 20 percent flat tax for both individuals and corporations. This is smart politics for the GOP primary and engaging policy that could help spur a constructive national debate about tax reform. But the plan sidesteps any serious deficit and debt reduction.
A couple of things jump out at first glance. First of all, Perry has preserved a couple of key personal deductions that would have been political hell to remove, including charitable donations, mortgage interest, and state and local taxes. It’s worth pointing out that this does not make it a pure flat tax.
The one-page sample form is a nice touch, and it bears more than a passing resemblance to Rudy Giuliani’s 2007 FAST Form, to which I have a sentimental attachment.
Another crucial new detail is that the flat tax would be optional, removing some of the rational opposition from those who would argue that a flat tax is too big a change to impose overnight. It’s difficult for Democrats to demonize increased individual choice.
Perry’s plan puts him decidedly to the right of Mitt Romney on tax reform (though Jon Huntsman's Wall Street Journal–lauded plan probably remains the best fiscally conservative model because it reduces some rates even further while dealing with the deficit and the debt). Perry's decision to fill his plan with conservative crowd-pleasers like private accounts for Social Security not only distracts from the flat-tax debate, it adds a general-election albatross because it acts like the 2008 stock-market crash never happened.
Once again, we’re seeing tax-cut theology trump real deficit-hawk instincts in the pandering to the Republican primary electorate.
Buried in conservative boilerplate, the plan contains lines like these that could come back to haunt him: “The corporate tax code is also riddled with loopholes and special-interest tax breaks that are not available to hard-working individual taxpayers. While many families struggle to pay their tax bills, some billion-dollar corporations find a way to avoid paying any federal taxes at all. While individual Americans struggle every year with tax compliance, large companies spend billions on tax avoidance. Special-interest corporate tax breaks and loopholes need to be eliminated so that small businesses and large corporations can compete on a level playing field.”
So is it fair to assume that Rick Perry will support a compromise the budget supercommittee reaches on tax reform à la Bowles-Simpson (or even President Obama’s proposal on corporate taxes) that would reduce rates but close loopholes? If so, his leadership could help forge the political will to find a solution. But my guess is that his team will try to distance themselves from that kind of truly risky across-the-aisle problem-solving endorsement.
Which brings me to the biggest unintentional tell in Perry’s overarching plan. Deficit and debt reduction—allegedly the motivating factor behind Tea Party protests—is almost entirely absent except as a bank shot of assumed economic growth. Once again, we’re seeing tax-cut theology trump real deficit-hawk instincts in the pandering to the Republican primary electorate.