Monday, October 24, 2011

Perry's tax plan looks great

The best thing about the Republican debates has been that they have proved to be a breeding ground for good ideas. Cain's 9-9-9 plan has been received very enthusiastically, catapulting him from a nobody to a serious contender, and today Rick Perry has improved on the idea with his 20% voluntary flat tax. I should note, however, that Perry has borrowed very smartly from Steve Moore's visionary Alternative Maximum Tax, which he proposed way back in 1997.

Steve Moore, whom I first met at a Cato conference in the early 1990s, and who went on to lead the hugely influential Club for Growth, had a brilliant idea: make the switch to a flat tax voluntary. Let people pay a flat tax rate (Steve originally proposed a 25% flat tax) that was somewhat more than what the average effective income tax rate was at the time, in exchange for being able to fill out their tax forms on a postcard, while also forgoing all the expense of hiring accountants and lawyers to maximize the value of deductions. Steve's plan had the great virtue—as does Perry's plan—of greatly simplifying the tax code, broadening the tax base, and thus maximizing the pro-growth incentives of a lower marginal tax rate. Plus, it made the transition to a completely different tax code relatively painless: let people decide which tax system they wanted to follow, just as Jose PiƱera had the vision to make Chile's privatized social security reform voluntary. The best system will in the end win out, as has Chile's privatized social security reform.

I'm not picking candidates at this point, but I am pointing out that we now have some very, very interesting solutions being proposed to our nation's fundamentals problems, and this is extremely positive. You haven't heard the end of this—only the beginning, and it just promises to get better. Let the best man win!

18 comments:

brodero said...

Perry is not the brightest bulb.
Under Reagan government spending
never got below 20%...Perry wants
18%...let him honestly explain to
the American public what he want to cut. He refuses to cut military spending even though the U.S. pays 43% of the worlds military bill. Even in Texas he has been against
Big gummerment and yet he takes federal money to balance his states budget. He is not the best choice for the US right now.

Frozen in the North said...

Really 999 was a brilliant idea! Unfortunately, its not even that, its a slogan. No real thought on what this does, of course those who did figured out that its a massive tax increase for those earning less than $200k and a massive reduction for those earning more than $200k.

Now that's class warfare!

Tom said...

I think that Perry's plan may sound great but what I see is more accounting expenses as everyone calculates their taxes both ways (flat and traditional) and then chooses the one that is less. Or is it once you go flat, you can't go back the next year? Also, part of the appeal of the flat tax is it eliminates the IRS. Perry's plan doesn't do that.

Jon S. said...

Tom is right. I don't get why he's offering two plans; it sounds a lot like Obama's (phony) pledge on health care: "if you like your current plan, you can keep it." It's complicated and would be a nightmare to manage, and worst of all for Perry it's a gift to his opponents. They can argue that Perry can't make up his mind, that he wants to have it both ways, and the like. A candidate needs a simple plan that can be easily described and easily understood.

I believe the first part of Perry's plan is much better, even though I prefer a much stronger push for reform in key areas, particularly corporate taxes which should be eliminated. Another part of this plan will also be subject to attack: he wants to move to a territorial tax system, only taxing profits made in the US, but I hope he has a good answer when the rest of the field screams that he's encouraging companies to move more of their production and sales overseas.

L.A. said...

Frozen, the idea that 999 is class warfare is obsurd and that mentality is the reason we have the war on the wealthy stuff going on in this country and IMO the reason we have many of problems we do. Those taking that side of the argument fail to realize that above all else 999 is fair, it is not class warfare at all. All pay an equal percentage in taxes across the board, regardless of marital status, race, or economic or social standing.

Please explain why any American should pay any more or less than their fellow countrymen in taxes on a percentage basis. It is not the governments role to police wealth, and we should all share equally in funding government services and operations - again on a percentage basis.

Public Library said...

Tom is definitely right. Everyone will calculate both rates and chose the lowest. This does nothing to reduce the burden of the current tax system. Hardly a bold effort but I believe its a moot point for Perry.

I doubt anyone believes he is qualified for the job even if he pushes ideas from the past.

Ed R said...

Perry's 'flat tax' is warmed over Steve Forbes. Which had already been warmed over once by Paul Ryan a few months ago.

In an interview with Forbes magazine (yes, Forbes magazine)Ryan admitted that his 'flat tax'
would INCREASE taxes for
about 75% of income earners while reducing them for about 1%. He soon dropped his own plan to run for president and his 'flat tax' ideas seem to have dropped as well.

Perry's proposal at this point must
be recognized for what it is:
a transparent ploy to attract early campaign contributions from that 1%.

Unknown said...

Neither Perry's nor Cain's plans have a snowball's chance in hell of making it through congress. Anyone who spends more than 2 minutes analyzing what would happen if they were enacted is wasting their time.

Cabodog said...

Glad to see this stuff being discussed, but I'd agree that an alternative tax is just more complexity added to the stew (and more accounting costs).

onerioi said...

Perry reads the following news and thinks "I should sound more like Cain." News from CNN/NY Times Poll: "Cain leads former Massachusetts Gov. Mitt Romney in the poll, 25 percent to 21 percent -- within the poll's margin of error. Former House Speaker Newt Gingrich was third, at 10 percent, followed by Rep. RON PAUL, R-Texas, at 8 percent. Texas Gov. Rick Perry was well back in fifth place, with just six percent of the vote."

Benjamin said...

Is a flat tax on gross or net income?

As a small business operator, many years my gross is very nice, and the net is in the toilet.

That said, if people can reduce their net through accounting gimmicks, then a "flat tax" is just a mirage.....

I prefer national sales and gasoline taxes...the reason you never hear about gasoline taxes is the rural lobby...and the GOP caters to rural pink America.

Frozen in the North said...

@L.A.

What are you a lawyer. Got to discuss things your way or the highway! You don't get to decide on the rules. At any rate making your argument on percentage, is also wrong since poor people pay a greater percentage of their income in Payroll tax -- are you for abolishing the cap on this?

The concept of progressive taxation is well understood by almost the entire planet. I will also bet you that no one S&P500 will be keen on a flat tax on all their earnings. Today large corps actually pay less than 20% tax on their revenues.

Finally, the flat tax is a stupid idea, created by a number of stupid guys (starting with Steve Forbes). Moreover, the current Perry incarnation is even more stupid, since it doesn't do away with the cost of enforcing taxes (IRS and its very large bureaucracy).

Benjamin said...

A better idea would be to target growth with monetary policy.

But oh-no! No GOP'er can ever praise stimulative monetary policies. That is like saying you worship Satan.

djakel said...

Perry's plan is not a true flat tax. It adds another several thousand pages to the tax code without eliminating any of it. It keeps most deductions for those earning less than 500K. It exempts a family of 4 from the first 50K; it is now 15K. He also wants to exempt all Social Security from income tax. We now pay tax on 50-85% of benefits if adjusted taxable income exceeds 32K on a joint return. This is a form of means testing. Perry's proposal is the opposite of means testing.
Hedge fund managers would pay close to zero as cap gains are exempt per Perry.
A true flat tax is 23% of all personal income, no deductions or loopholes, plus small personal exemptions; OR 23% of all new retail purchases with only a small personal rebate to eliminate regressivity. With either true flat tax, simultaneously eliminate all other federal taxes, including payroll taxes, which Perry's plan leaves in place.

randy said...
This comment has been removed by the author.
mmanagedaccounts said...

Randy, what do you mean by "as M. Bachman so stupidly noted"? What, pray tell, is stupid about that? You obviously noted it too. Does that make you equally stupid?

randy said...

I heartily agree with Scott that it's a great thing that tax reform has more steam behind it now.

The bottom line is that the current system results in massive compliance and regulatory burdens, disruptive misallocations of capital because of non-sensical tax incentives, and promotes legislative corruption. Any plan that reduces those problems is worthy of discussion.

Re: Michelle Bachman. I was referring to her comment that "the devil is in the details and when you turn 999 upside down you get 666" implying the mark of the devil. Yes, I think that the satanic connection is stupid. I hope that doesn't offend you... I guess. But yes, the details will make or break any of these plans.

John said...

This is silly, but it rains on Cain's parade, which is probably the main intent. Lobbyists created the current tax code. Do Perry and Cain really think they'll just go away?