Rick Perry tax plan means "substantial" revenue loss for U.S. government

AP Photo/ Richard Shiro

The tax plan put forth by Republican presidential candidate Rick Perry would mean a significant reduction in how much money the government takes in, an independent economic expert said Tuesday.

Perry is offering taxpayers two choices - either stick with the current tax system or opt into a new system in which they pay a 20 percent flat income tax. That incentivizes those who would pay less under the current system to stick with it, and those who would pay less under the flat tax plan - largely Americans on the upper end of the income scale - to opt for the new plan.

That would add up to a "substantial" decrease in revenues, says Ted Gayer, the co-director of the Economic Studies program and a Senior Fellow at the Brookings Institution.

Perry has yet to lay out all the specifics of the plan, which makes it difficult to estimate its full impact. But "it's clearly going to be a reduction in revenues, I think fairly substantial," said Gayer. Many conservative Republicans want to reduce the role of government in society in part by starving it of funds.

(At left, CBS MoneyWatch's Jill Schlesinger and Jack Otter discuss Perry's plan.) 

In addition to allowing Americans to stick with the current tax code, Perry is maintaining a number of deductions under his flat tax plan, including deductions for home mortgage interest and donations to charity. That cuts against one of the key benefits of a flat tax plan. Proponents of a flat tax say it works because it simultaneously makes the pool of taxpayers larger and makes more kinds of income taxable by eliminating deductions, a concept referred to as "broadening the base." The broadening is diminished under Perry's plan because many of the current deductions are kept in place.

By giving taxpayers the right to stick with their old plan, Perry can argue that he is not raising taxes on the poor and middle class. Herman Cain modified his "9-9-9" plan after critics noted that it amounted to a tax increase for as many as 84 percent of Americans; Perry can simply say that if you like your current tax rate, you can keep it.

What Perry's plan boils down to is a tax cut for the highest-income Americans, who currently pay a top marginal income tax rate of 35 percent, and no tax change for those who don't opt for the new system.

Perry argues that his plan simplifies the tax code, saying Tuesday that taxpayers will simply need to fill out a postcard to file their taxes. But since they will need to decide between the old system and the new one, it won't be quite so simple for many Americans.

"It kind of undermines the whole we're making your taxes simpler argument, because you still have to go through both systems to see which one is best for you," said Gayer.

Perry vowed to balance the budget by 2020 and cap on federal spending at no more than 18 percent of Gross Domestic Product. Under current policy forecasts, the United States will be spending 26 percent of GDP in 2020 and 34 percent of GDP by 2035. Perry would need to dramatically slash federal spending to meet his 18 percent goal.

[RobAla]

The left focuses on the fact that the flat tax reduces the tax rates for the upper income individuals and businesses, but the left ignores the fact that it also gets rid of all the loopholes for the wealthy and businesses that they complain about. Right now the middle class is crushed under the weight of three years of 9% unemployment, as failed progressive policy continues to cripple private sector businesses with additional expenses and regulations.

I doubt I will vote for Perry, but at least he is stirring up the pot when it comes to changing our ridiculous convoluted tax code. A flat tax, or the Fair Tax, or (my personal favorite to totally replace the federal income tax) a national sales tax would stop the loopholes that people are complaining about. A national sales tax would capture tax from the underground economy (drug dealers, illegal immigrants,..etc), it would stop the micromanaging of businesses and individuals by a silly Washington crowd that can't even manage itself (hence a staggering $14.4 national debt), and it would severely diminish the power of lobbyists in Washington. It wouldn't hit the poor very hard if food, clothing, and shelter were exempted. It would not tax savings, and it would help people who saved get ahead. It would cut the IRS in half, and only businesses would have to be concerned with paying federal taxes in April.

Anything which doesn't come out of Marx's Communist Manifesto seems far right to socialist President Obama. He is the most left wing extreme of any President in my lifetime, and his failed polices are a disaster.

[rockcutr]

Add up all the taxes... Fed income, sales tax, gas tax, property tax, school tax, drivers license tax, plates for your car tax, trailer tax, toll booth road tax. To name a few. Some folks have to deal with state taxes too. So, by the time it is all said and done. The slaves actually had it better pickin cotton than a natural born citizen who votes and actually pays their bills. Perrys economic plan sux. The flat tax should not raise the citizens obligation across the board. How about abolish federal tax all together. This would stop the money spending of washington and allow states to take care of themselves as intended by the writers of the Constitution.

[Andrew_Duncanson]

I agree the Rick Perry flat rate tax plan is just plan stupid and I think it is for that reason he is endorsing it.

[ladyang]

How would he fund all those wars?

[DonnyLumpkin0301]

Isn't that the whole point of tax reform. To keep the hands of the federal government from digging to deep into my pockets. Moreover, If everyone, rich and poor, paid the same amount of tax as the middle class the federal government could continue to run it's massive give away projects and the Democratic Party could contiue to rob from the middle class and give to the poor and the well endowed.

[Progress4USA]

Remember folks...under Ricks Two Tax Plan option, we'll need to increase the size of the IRS; one branch to cover the old system and one to cover the new.

Rick Perry = Bigger Government...bigger IRS!!!! Thanks Rick...the voters will just LOVE YOU!!!!!

[tsigili]

There is no good plan on the table......none.

It is going to take a better plan than anyone has, to solve our problems, especially now that Obama has run our national debt up, by more than 4 trillion dollars, in just 4 yrs. In fact, it will surprise me, if he doesn't actually hit the debt ceiling AGAIN, before the election.

We have to replace Obama, to save the country......the only question is.......who will be the best choice for that task. Perry is still one of the top 3 choices, in my view. Which one will win, in the primary, is still a question.

[carolo43]

I have voted in every election for more than 40 years and never seen poorer options offered up by the Republicans than in this election. Romney and Perry change their minds more often than most change their underwear.

Cain can offer nothing but a joke about everything. Our economy and foreign affairs is hardly a joke. Taxes are not apples and oranges, all unemployed people are not lazy and if you can not find a job, it is not YOUR fault.

Ron Paul should be running for an office at AARP. John Huntsman is the only person in that mess that acts like a real person, understands real problems and has a working brain and some class.

[Progress4USA]

Yep...that's exactly why Huntsman is polling at 2% GOP approval. He is soooooooo unlike the base!

[commonworkingman]

Remember, Perry wasn't a brain in college. He was a cheerleader.

[rebasfla]

I'm just an average citizen with no special access to untold information, but I can analyze the
information I do get and study. It tells me Perry is 'full of hot air', a fake and fraud, (much like
Cain) and this country would be a hopeless mess if either of these two were to accidentally make it to the Presidency. A 'real scary thought'