On Cut, Balance, and GrowPolicyPolitics

Rick Perry was in a terrible bind. His initial campaign boomlet had busted; his debate performances turned off millions of Republicans; and he was in danger of becoming irrelevant in the 2012 race for President. He was – and maybe still is – desperate. This is precisely the time when politicians tend to do incredibly dumb things. Perry didn’t; instead, he brought forth an economic plan that is politically doable and will be a clear benefit to the country (even if parts of it are rather opaque).

Today, Perry will put forth an economic plan outlined in his Wall Street Journal op-ed. He proposes a nearly-flat 20% income tax rate. I say “nearly” because personal exemptions go up to $12,500, and charitable, home-mortgage, and state/local tax deductions are still in place. Personally, I could have really done without the last one (it is a back-door encouragement to government growth at the state and local levels). For a family of four, income tax is absolute zero. Corporate tax rates would also be 20% (after a one-year 5.25% temporary rate to encourage firms to reshift profits here – not sure that wil matter much, but the permanent reduction is essential).

Perry is now the only candidate other than Herman Cain to present a specific tax plan, and Perry’s has several advantages. For starters, Perry’s plan does not include a value-added tax, a horrific silent tax that governments in Europe have used as unseen ATMs for decades. More importantly, Perry doesn’t strain for a revenue-neutral plan like Cain does; he openly calls it a tax cut, and admits additional spending cuts will be needed to balance the budget in 2020.

Sadly, Perry presents no details as to how will bring spending down in nine years (he wants it to be 18% of GDP) – although no one besides Ron Paul is willing to be specific about that.

All in all, though, it is probably the best plan we’ve seen for providing the economic growth that uniquely comes with tax reductions, while avoiding future tax increases that the Cain plan practically guarantees.

Cross-posted to RWL

  • ToR

    DJ,

    What happened to all the Republicans that were bitching about the 50% of the country that already didn’t pay federal income taxes?

    Now Perry wants to eliminate taxes for families of four whose income level is below $50,000, more if you take into account their charitable gifts, mortgage, and state and local taxes. How long will it take for the Republicans to start complaining about this? I’m curious if Perry’s staff ran this by anyone, what % of the country will now pay no federal income tax? I thought the idea was everyone should pay something.

    Hypocrisy!

    When will we start to hear the complaining? And how does Perry plan to balance the budget while reducing revenues 30-40%? It doesn’t take anything, not even much of a brain, to release a crazy tax plan, it takes guts to show how you’ll balance the budget under your crazy tax plan. Apparently only Ron Paul has any.

    At least this is a progressive flat tax, one that doesn’t hurt low and middle income earners while benefiting the upper-middle and upper classes,

  • valentinus

    “Perry’s plan does not include a value-added tax,”

    I am not an expert on all these plans but my understanding is that Cain is proposing a Sales Tax, NOT a Value Added tax. If you don’t know the difference that wouldn’t be reassuring for your analysis.

    It is a major issue given the proclivities of Congress and the massive debt and deficits that Perry’s plan is Not revenue neutral. It is possible that economic growth would be so much better under Perry’s plan vs Cain’s plan that the difference would be resolved but that is doubtful.

    For the record I think both the Perry plan and the Cain plan are good starting points and would be far better than the mess we have now although I am also partial to the 1986 Reagan plan before the schmucks messed it up.

  • Mike Barrett

    In desperation, Perry has thrown together a series of discredited and unrelated proposals and bound it all together as his Plan. If this is the best he can do, he is toast as a candidate. In fact, all these candidates are in the same bind; so long as they keep criticizing the President without a solid realistic indication of what they would do differently, their shrill voices of condemnation are getting increasingly irrelevant in the debate.

    The President’s endorsement of spending cuts, increased revenue, stimulation of growth, and modification of entitlements is the only responsible proposal on the table, made even more compelling by the example of Great Britain’s failure by endorsement the cuts only tactic. Fact is, right now, we need growth, and long term, we need a balanced mix of cuts, entitlement reform, and tax reform.

    Frankly, the nutty proposals by Cain and Perry are worse than Romney’s dodge of the topic, but so far, Romney wants to play it safe. Is that leadership?

  • Tor

    Disastrous plan; terrible. And its frustrating that these politicians stand there and lie to the us.

    First of all, it’s not possible to balance the budget by 2020 with this plan. Simply, not possible; there is no way you can balance the budget while cutting revenue 30-40% or more. They’d have to cut spending by nearly $1 trillion a year just to balance the budget, let alone pay off the debt.

    Secondly, it’s not fair for all or good for all. It’s a regressive tax. For people who are making tons of money: income, capital gains, dividends, this lowers their income tax rate from 35% to 20% and eliminates all taxes on capital gains and dividend taxes. The wealthy are getting a huge tax cut and the middle class get peanuts. And the poor are where they were before – not contributing to the federal budget at all.

    Thirdly, taxpayers can decide between the old system and the new system. What does that even do? It enables even fewer people to pay any taxes at all. We’re going to have 75% of the people not paying any taxes at all. Not to mention that means we have to maintain two tax systems and the bureaucracy that goes with it.

    And finally, this a Republican race to the bottom. Cain introduces a terrible plan, then Gingrich introduces his 15% flat tax, and now Perry with a 20% [sorta] flat tax. None of them have actually provided any details of how these plans will play out or how they’d cut the federal budget. Not one, or at least not without lying. How about someone who has an interest in leading and governing, not just winning an election with gimmicks. Maybe some of us don’t want sound clips and pizza pricing from our leaders. Why not provide something real, something realistic, something that has a chance of being implemented. Or maybe, the Republican primary voters are just itching for the crazies.

    On a slightly different note, his mannerisms and voice looked and sounded a lot like President Bush. I can’t imagine that’ll be good for him in the long run.

  • Mike Barrett

    Yes Tor, and it is difficult to comprehend how business oriented republicans who know these proposals are simply crazy bizarre, are not speaking up to say, enough, we can’t win with this garbage, and if we did, it would undo our financial and fiscal welfare.

    Fact is, 70% of our economy is consumer related, and the republicans seem dead set on making sure that only 1% of the people in this nation can buy anything. Bizarre, absolutely; if they were ever successful in implementing these Plans, America’s role as the leader of the free world would cease and we would deteriorate into a second rate country.

    I used to think they all knew this but just wanted to win real bad; now I am not sure they don’t really believe it. Not one of them is showing any capability to be the leader of the free world.

  • http://citizentom.com/ Citizen Tom

    Here is how Herman Cain describes his sales tax.

    9% National Sales Tax.

    Unlike a state sales tax, which is an add-on tax that increases the price of goods and services, this is a replacement tax. It replaces taxes that are already embedded in selling prices. By replacing higher marginal rates in the production process with lower marginal rates, marginal production costs actually decline, which will lead to prices being the same or lower, not higher.

    I must admit to being confused by the description. So I can see why some people call it a Value Added Tax (VAT). Whatever it is, I think needs to explain it better.

    Perry’s proposal has the advantage of being a less severe departure from the current system.
    http://www.rickperry.org/cut-balance-and-grow-html/

    So Perry’s proposal will be less threatening to folks anchored in the status quo. Ironically, that is also the problem with Perry’s proposal.
    http://www.foxnews.com/opinion/2011/10/25/rick-perrys-tax-plan-would-be-disaster-for-america/

    Whether Perry, Cain, or anybody can balance the budget depends upon us. We have to insist Congress cut spending. We must restore LIMITED government.We do not have enough money to keep spending like this.

    When we passed the point where taxing and spending stifles our economy and forced business out of the country, we reached the point where continued budget increases guarantee bankruptcy.

  • Tor

    Citizen Tom,

    Taxes and spending didn’t force business out of the US.

    Companies moved jobs overseas because they can pay workers next to nothing and there aren’t many forms of worker protections. Companies “move” to the Bahamas (and other offshore locations) because there are no taxes. It’s a scam/cheating the system and pretty much everyone can agree to that.

    Additionally, there is the complete absence to rules about private property so when a company wants to build a factory in China, the government forces who is ever off the land and builds the factory, no questions asked. And those factories don’t have to have any environmental controls. Pour it down the river, let it flow out into the air. Have you ever traveled to industrial area of Mexico or China?

    I can’t believe that people who have ever drank water out of a tap or walked outside without a particle filtering mask would want to roll back environmental protections.

    These are the reasons that jobs and businesses (two completely different issues) move overseas, not because of spending and taxing.