Rick Perry's

Rick Perry has finally revealed his tax plan which among other things includes a 20% flat tax. How does his plan stack up against the rest? Is it a good idea?

Rick Perry will formally make his announcement today, but released details of his plan in an op-ed in the Wall Street Journal. Perry is taking an old idea that Steve Forbes ran on in 1996 with support of a national flat tax. Perry’s plan does have some interesting tidbits that cannot be overlooked. Perry’s plan allows everyone to choose between his new flat tax system or the current system. To me that sounds pretty weak. If the plan is so much better (which I believe it is), why leave the current system in place? It seems like an out so Perry can claim he will not raise anyone’s taxes because it will be their choice to jump to the new system.

Another thing Perry’s plan does is keep current deductions for mortgage interest, charitable contributions, and state/local taxes for families that earn less than $500,000, while increasing the standard deduction to $12,500. I seem to remember a variety of republicans bashing Mitt Romney for his fifty-something point plan that included keeping certain deductions for families earning less than $250,000. The claim was that Romney was drawing a line in the sand on who was rich and who was middle class much like Obama has done. Perry does the same thing in his plan, though the line is twice as much.

There are specific provisions to help business in Perry’s plan. He will lower the corporate tax rate to 20%. Perry will ‘temporarily’ lower the repatriation of overseas money to the United States to 5.25%. No mention how long that will last. Perry also mentions transitioning to a territorial tax system that only taxes income that is made in the country. While on the surface this sounds like a good idea, it would mean that people and companies could outsource income to avoid taxes in the United States.

Also Perry’s plan, he would eliminate social security income from taxation. This would be a big boost to seniors across the country. Perry will also eliminate taxes on dividends and capital gains. This would boost investing. I would like to see him add interest to the list as well. Though I guess you can’t get everything you want.

Another major part to Perry’s plan, and one that one-ups Herman Cain’s 9-9-9 plan, is that he wants to pass a balanced budget amendment (BBA) and cap federal spending to 18% of GDP. Perry would also ban earmarks and freeze federal hiring and salaries until the budget is balanced. These things sound great, but there are lots of consequences to these actions that need to be panned out before such an action takes place. Perry also wants to repeal ObamaCare, Dodd-Frank, and section 404 of Sarbanes-Oxley. Section 404 is the section that is noted of being the most costly for companies to comply with. Curious that Perry singles it out, instead of repealing the whole thing.

All and all, I think Perry’s tax plan is fantastic! I have stated before that I think that the only way to get out of the mess we’re in is through fundamental tax reform. Perry has heard that message and came out with a plan of his own as the answer. There are some things I am not a fan of, such as keeping the current tax code in place and allowing people to pick and choose which system they want to use. I am also not a fan of switching to a territorial tax system because of the negative consequences involved with it.

The biggest part of Perry’s plan that I am not sold on is the second part which calls for a cap in federal spending based on GDP, a BBA, and the repeal of ObamaCare, Dodd-Frank, and section 404 of Sarbanes-Oxley. I am not sold on repealing ObamaCare, Dodd-Frank, and section 404 of Sarbanes-Oxley outright because I would like to see a proposal for their replacement before an outright repeal is done. Until there is a plan for a replacement of these bills, which do serve a purpose, repealing them would take us backwards in my opinion. As for the BBA, I am not necessarily against a BBA, but would be very careful in its crafting. Previous iterations of a BBA floated by the GOP included the requirement of a super-majority to raise any revenue but a simple majority to cut spending. I think the same requirements should be placed on both instances.

The most dangerous part of his plan in my view is the spending cap of 18% of GDP. This is very dangerous because if enacted via an amendment to the Constitution, it would dampen our ability to ramp up spending rapidly in case of emergencies such as a recession, depression, or war. For example, in World War 2, total government spending reached 53% of GDP! This would be impossible under Perry’s proposal, which is why I call it very dangerous.

I really like the tax overhaul part of Perry’s plan. Herman Cain deserves much credit for making this an issue in the race because before he introduced his 9-9-9 plan and started to soar in the polls because of it, talk of fundamental tax reform was on the back-burner. I think the second part of his plan needs a lot of work. It all sounds great on the surface, but the negative consequences do not seem to be worked out. Will Perry’s plan save his candidacy for President?