How flat will Rick Perry's flat tax be?(Read article summary)
Rick Perry is going to propose a flat tax plan soon. He’s said it’s going to be 'flatter and fairer' than Herman Cain’s signature '9-9-9' proposal, which has been hammered by his rivals.
Rick Perry is going to propose a new flat rate income tax system sometime soon. He’s said it’s going to be “flatter and fairer” than Herman Cain’s signature “9-9-9” proposal. So just how flat is it going to be?
We ask that question because Mr. Perry’s plan, depending on its details, could be open to some of the same criticisms that GOP rivals have leveled at Cain’s triple 9 strategy.
The current income tax is levied in a stair-step of increasing rates the higher one’s income rises. A true flat tax, which would tax all income at one rate, thus would lower taxes for the wealthy and likely raise them for the poor and some percentage of the middle class, if it is to bring in anything close to the same amount of money produced by today’s system.
Rick Santorum, among others, hammered at this aspect of a flat tax in this week’s CNN debate. Speaking of Cain’s”9-9-9”, Santorum said, “I love his boldness ... but the fact of the matter is, reports are now out that 84 percent of Americans would pay more under his plan ... we’re talking about major increases in taxes on people”.
Cain’s already tweaking his proposal, carving out exemptions for those near the poverty line in order to soften what outside experts judge to be its regressive nature. Can Perry avoid such a retreat?
One of his economic advisors says he can. “People’s mouths will water” when they see the details of the Perry flat tax, said businessman Steve Forbes, who’s working with the Perry campaign on this matter.
Mr. Forbes himself ran for the GOP presidential nomination on a flat tax platform in 1996 and 2000. A look back at the Forbes plan might thus give a hint of what to expect from the current Texas governor.
In 1996, for instance, Forbes called for a flat 17 percent tax rate on all income. This was not a complete flat tax proposal, however, as it also included relatively generous income exemptions for individuals and children.
“A family of four would pay no taxes on the first $36,000 of income”, wrote the Forbes campaign at the time.
Perry’s proposal likely will contain a similar feature to soften its effects at lower income levels.
But, if you want to raise near the same amount of money as the IRS does now, it is very difficult to design a flat tax system that does not shift at least some of the tax burden off the shoulders of the wealthy and onto those at lower rungs of the income ladder, notes a 2008 Congressional Research Service study of the flat tax and other reform proposals.
“Any flattening of the tax rates would have distributional consequences across income classes,” wrote CRS economics specialist Jane Gravelle (PDF).
Of course, to many flat tax proponents, that is part of the point of such a system. Nobel prize-winning economist Milton Friedman, the modern father of the flat tax, challenged progressive taxation as inherently unfair.
After all, even under a flat tax, the wealthy pay more, as they have more income, noted Friedman. To increase the percentage of their burden is to use the tax system as a means to redistribute income, in his view.
“This seems a clear case of using coercion to take from some in order to give to others and thus to conflict head-on with individual freedom,” wrote Friedman in his book, “Capitalism and Freedom.”
Liberal economists reject this libertarian view. For one thing, the burdens of supporting society should fall in proportion to the ability to bear them, they argue. For another, a dollar is worth more to the poor, who have fewer of them, than it is to the rich. In this way its value is not constant across income levels, they say.
Will Perry’s proposal help him with GOP primary voters? That remains to be seen of course. But one thing it may do is draw a distinction between him and once-and-current frontrunner Mitt Romney.
According to the Associated Press, in 1996 Romney bought a $50,000 newspaper ad in Boston that said Forbes’ flat tax proposal would primarily benefit the rich. The flat tax “is a bad idea for the Republican Party,” wrote Romney at the time.