Search This Blog

Defying the Odds

Defying the Odds
New book about the 2016 election.

Wednesday, October 26, 2011

Perry's Sorta Flat Tax

Rick Perry proposes a tax reform:

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. A simpler, flatter tax code – free from the dozens of individual carve-outs that make the code so incomprehensible – will remove the disincentives to work, entrepreneurial risk-taking, and investment that form the foundation of a strong and vibrant economy.

Lower- and middle-income families will be able to take advantage of an optional 20% flat tax rate that includes generous standard exemptions of $12,500 for individuals and their dependents, as well as deductions for mortgage interest, charitable contributions, and state and local taxes.

If the plan is optional, then people would never choose to pay more than they already do. Many would be able to pay a lot less. So revenues would fall. Perry says compliance costs would also fall -- but not if a lot of people opt for the current system. The "optional" part means that the rest of the tax code stays in place, which negates the "simplicity" part.

National Review observes:

No detailed analysis of how much revenue the plan would raise has been done, but it seems highly likely that the number would be much lower than under the current system, and lower than Perry’s team is claiming. Governor Perry has already had to put an optimistic gloss on his proposed spending cuts to get his numbers to balance. If his revenue estimates are also too optimistic then the net effect of his proposals will be to make our already precarious budgetary position worse. The personal accounts Perry wants to introduce to Social Security will also make the budget deficit worse for many years, which is a bigger problem now than it would have been a decade ago.