Tag Archives: Flat Tax

Rick Perry Looks To Further Complicate Tax Code For Some Reason

By Gary P Jackson

In an op-ed for the Wall Street Journal Rick Perry talks about his new tax plan. Like Herman Cain, Perry doesn’t propose a constitutional amendment to change or eliminate the current tax system. Perry’s is simply an add on device. A gimmick.

Before we go any further, readers should know Russia, the former “evil empire,” eliminated it’s progressive tax rate for individuals in 2001 and changed to a 13% flat tax. In 2002 the government saw an increase in revenue of 39.7% over 2001. After adjusting for inflation of 15.1%, real revenue rose 24.6%, supplying 15.3% of the consolidated budget. GDP growth in 2002 was 4.7%, a small decline.

2003 saw a gain of only 27.2% over 2002. After adjusting for inflation of 12.0%, real revenue increased 15.2%, supplying 17% of consolidated budget revenue. On the other hand, GDP growth in 2003 was a more robust 7.3%.

Russia’s tax system has been a great success, though it isn’t perfect, and I want to discuss it further in another article, it is better than this:

By Rick Perry

The folks in Washington might not like to hear it, but the plain truth is the U.S. government spends too much. Taxes are too high, too complex, and too riddled with special interest loopholes. And our expensive entitlement system is unsustainable in the long run.

Without significant change quickly, our nation will go the way of some in Europe: mired in debt and unable to pay our bills. President Obama and many in Washington seem unable or unwilling to tackle these issues, either out of fear of alienating the left or because they want Americans to be dependent on big government.

On Tuesday I will announce my “Cut, Balance and Grow” plan to scrap the current tax code, lower and simplify tax rates, cut spending and balance the federal budget, reform entitlements, and grow jobs and economic opportunity.

The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.

OK, let’s stop right here. How, exactly does Perry’s plan “simplify” the process? You’re giving tax payers a choice, for sure, but in most cases you’ll have tax payers figuring their tax burdens using both formulas, to make sure which works out better for them. Twice the work, not less. More complicated, not less.

This simple 20% flat tax will allow Americans to file their taxes on a postcard, saving up to $483 billion in compliance costs. By eliminating the dozens of carve-outs that make the current code so incomprehensible, we will renew incentives for entrepreneurial risk-taking and investment that creates jobs, inspires Americans to work hard and forms the foundation of a strong economy. My plan also abolishes the death tax once and for all, providing needed certainty to American family farms and small businesses.

Exactly how is a taxpayer, using the new plan, going to “file their taxes on a postcard” if there are still all sorts of deductions? A flat tax should be lower than this, and take into consideration that nothing would be deductible. The only exemptions would be people earning below a set level of income, adjusted for inflation, of course. That would be simple, easy, and uncomplicated.

Perry’s plan doesn’t simplify anything, but it sure sounds good …. on a post card.

My plan restores American competitiveness in the global marketplace and provides strong incentives for U.S.-based employers to build new factories and create thousands of jobs here at home.

First, we will lower the corporate tax rate to 20%—dropping it from the second highest in the developed world to a rate on par with our global competitors. Second, we will encourage the swift repatriation of some of the $1.4 trillion estimated to be parked overseas by temporarily lowering the rate to 5.25%. And third, we will transition to a “territorial tax system”—as seen in Hong Kong and France, for example—that only taxes in-country income.

Bad and actually pretty good in this deal. The good first: Allowing the repatriation of dollars is a good thing. It would be better if there was a small window of time it could be done tax free. We’d likely get ALL of the estimated $1.4 trillion to come back home that way. Better to see it circulating in the economy, because you aren’t gonna tax it if it never comes home anyway. I would drop the idea of taxing this money.

Now the bad. Lowering the tax rate on corporations alone isn’t going to do much as long as business has to deal with draconian regulations and labor unions. A good time back Sarah Palin introduced the idea of eliminating corporate taxes all together. That would entice businesses to come to America while other reforms are being made, and would remove the potential for corruption and cronyism. [probably why Perry doesn’t like it] You wouldn’t have lobbyists working to game the tax code or create exemptions for their businesses.

Besides, as we all know, corporations don’t really pay taxes anyway. They simply pass that cost along to the customer. It’s built into the retail price you pay for every item.

The mind-boggling complexity of the current tax code helps large corporations with lawyers and accountants devise the best tax-avoidance strategies money can buy. That is why Cut, Balance and Grow also phases out corporate loopholes and special-interest tax breaks to provide a level playing field for employers of all sizes.

I hear ya talking, but ain’t nothing being said. Tell us Governor Perry, how exactly does you plan address the special interests?

To help older Americans, we will eliminate the tax on Social Security benefits, boosting the incomes of 17 million current beneficiaries who see their benefits taxed if they continue to work and earn income in addition to Social Security earnings.

We will eliminate the tax on qualified dividends and long-term capital gains to free up the billions of dollars Americans are sitting on to avoid taxes on the gain.

Finally, something that makes some sense. Social Security and disability payments should never be taxed.

All of these tax cuts will be meaningless if we do not control federal spending. Last year the government spent $1.3 trillion more than it collected, and total federal debt now approaches $15 trillion. By the end of 2011, the Office of Management and Budget expects the gross amount of federal debt to exceed the size of America’s entire economy for the first time in over 65 years.

Under my plan, we will establish a clear goal of balancing the budget by 2020. It will be an extremely difficult task exacerbated by the current economic crisis and our need for significant tax cuts to spur growth. But that growth is what will get us to balance, if we are willing to make the hard decisions of cutting.

We should start moving toward fiscal responsibility by capping federal spending at 18% of our gross domestic product, banning earmarks and future bailouts, and passing a Balanced Budget Amendment to the Constitution. My plan freezes federal civilian hiring and salaries until the budget is balanced. And to fix the regulatory excess of the Obama administration and its predecessors, my plan puts an immediate moratorium on pending federal regulations and provides a full audit of all regulations passed since 2008 to determine their need, impact and effect on job creation.

ObamaCare, Dodd-Frank and Section 404 of Sarbanes-Oxley must be quickly repealed and, if necessary, replaced by market-oriented, common-sense measures.

OK, something we can finally agree on. Regulations cost American jobs producers a little over $1 trillion dollars a year in compliance efforts. Can you imagine the economic impact of eliminating all but those that really are necessary?

For the first time we hear about a constitutional amendment. Sadly, it’s a balanced budget amendment, not one that sets the tax code in stone so future presidents and congresses will find it very difficult to fool around with.

I have issues with a balanced budget amendment. It’s a good idea, in theory, and most states already have one. The problem is, many states, including Rick Perry’s Texas, have gotten really good at gaming the system, and use accounting tricks to “balance” the budget on paper, but not in reality. Texas has big problems looming because of this. Another discussion for later.

Perry makes some good points here, but any tax plan that doesn’t come in the form of a constitutional amendment is nothing to get really excited over. Nor is any plan that doesn’t scrap the current system completely.

Also, no talk about other needed reforms, like a “right to work amendment, that would end government sanctioned extortion from workers, in exchange for work, and cause the economy to explode with jobs.

America must also once and for all face up to entitlement reform. To preserve benefits for current and near-term Social Security beneficiaries, my plan permanently stops politicians from raiding the program’s trust fund. Congressional IOUs are no substitute for workers’ Social Security payments. We should use the federal Highway Trust Fund as a model for protecting the integrity of a pay-as-you-go system.

Cut, Balance and Grow also gives younger workers the option to own their Social Security contributions through personal retirement accounts that Washington politicians can never raid. Because young workers will own their contributions, they will be free to seek a market rate of return if they choose, and to leave their retirement savings to their dependents when they die.

Ronald Reagan was talking about this in 1964. [almost to the day in fact] Pretty much word for word. Reagan’s idea was to take care of those already promised, but work toward personal responsibility for the rest. If Congress was a private business, what they have done with Social Security would land each and every member in prison.

Read more here.

This is sort of a Hail Mary plan for Perry. His campaign has ground to a halt as Americans have learned more about his actual record, and his troubling predilection for cronyism and corruption. It’s very much a miss.

It’s like Perry is trying to be all things to all people, rather than a leader or a problem solver. Having two separate, and different, ways of paying taxes will only complicate an already complicated situation.

A simple flat tax, or even, under the right circumstances, a national sales tax instead of an income tax, could work.

What Perry has is yet another hot mess that only a life-long member of the permanent political class could come up with and then actually present to normal folks, smiling and thinking they got something.

Perry really doesn’t get it.

I haven’t taken time to run the numbers on this deal, no need though, because like Perry’s quixotic campaign, it’s pretty much DOA. It doesn’t seem to accomplish much. It’s not bold enough. It doesn’t really get to the core problems.

Good effort, as at least we are talking about taxes, but not good enough to make Perry any more appealing.

A true leader would come up with a bold and decisive plan that would simplify the tax code, not just add another component.

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