Perry’s Flat Tax Plan Seeks Major Tax, Spending Overhaul

Texas Gov. Rick Perry’s newly unveiled economic plan proposes far more than a flat tax. The Republican presidential hopeful would make sweeping changes in taxes and spending, including a goal of a balanced budget by 2020.

But the centerpiece is a flat tax of 20 percent for corporations and individuals.

Holding up a postcard Tuesday as he announced the details of his plan, Perry said "Each individual taxpayer will have a choice. You can continue to pay your taxes, as well as accountants, lawyers, under the current tax system we got or you can file your taxes on this postcard."

Perry's plan would preserve deductions for home mortgage interest, charitable contributions and state and local taxes.

It would also increase the $12,500 exemption per person. All that will make the tax less flat.

But for those who might be squeamish about leaping into an entirely new tax system, allowing people to choose which system to file under will be comforting.

"If you like the flat tax better, you can choose that," said Kevin Hassett, a tax expert at the American Enterprise Institute. "If you like the regular code better you can stay with that as well... The attraction really is that there's nobody anywhere in society that's made worse off by this plan."

That didn’t stop the Obama campaign from launching an early attack, arguing that the Perry plan would "shift a greater share of taxes away from large corporations and the wealthiest onto the backs of the middle class."

But with all the deductions, a family of four would have to make substantially more than $50,000 to face any federal income taxes.

And one of the early proponents of a flat tax, Steve Forbes, said a family of four "would have to make a good sum of money before they get hit with the flat tax. So it's a tax cut for most people, not a tax increase."

But some analysts argue that offering a choice of how to file could also reduce revenues.

Joseph Rosenberg, a researcher of The Tax Policy Center said "the only way you would opt into the new system is if you'd pay lower taxes under that new system. So sort of by definition, this new hybrid system will result in less overall revenue."

And Hassett said, "Therein lies the problem, because if a lot of people flip to the flat tax, then since the rates are a lot lower, then you will lose a lot of revenue for high income people. And if high income people switch to the flat tax, but everyone else stays with the current code, then it might be that this raises a lot less revenue than you might think and then he's gonna have to raise the rates."

And that would certainly complicate Perry's pledge to forge a balanced budget at a time when Republicans are sharply focused on the nation's growing deficits.

Perry also tackles entitlements. Among other things, he would end taxation of Social Security income, a boon to seniors. He would also allow young people to invest some of their taxes in private accounts if they wish.

Perry also pledged to work with Congress to raise the age of eligibility for Social Security and Medicare to match longer life spans. He proposed several changes in all entitlements aimed at fixing their unsustainable finances.

Perry was clearly swinging for the fences with Tuesday's proposal, which was intended to revive his efforts to win the nomination.

And a flat tax, even one that isn't entirely flat, is a good way to appeal to Republicans because it is seen as a way to ignite the economy and create jobs, the chief issue in the election.

That is why a flat tax is very appealing to Republicans.

"The flat tax is a much more efficient tax," Hassett said. "It should add a lot to economic growth, it should reduce unemployment."