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10.25.11

What's in Perry's Tax Plan?

Rick Perry says his new flat-tax plan can put America back to work and balance the federal budget by 2020. The Daily Beast breaks down the details. Plus, Michael Tomasky on why the Perry plan is little more than a massive tax break for the rich.

“Innocent taxpayers are being held hostage by a monstrous system of taxation that only grows worse with each passing year,” Rick Perry writes in the introduction to his new tax plan, which he previewed in The Wall Street JournalTuesday. “By 2020, America must have a tax code that is simple and fair.” So how does Perry plan to accomplish that?

The centerpiece of his proposal is a flat tax of 20 percent that all Americans would have the option to choose over their current tax rate. The flat-tax option would allow Americans to “file their taxes on a postcard,” according to the Perry plan. Even if they choose the flat tax, lower-income Americans would still be able to claim “generous” individual and dependent deductions of $12,500. (It’s currently $3,700.) The Perry plan would adopt several minor revisions of the personal income tax, including abolishing the taxation of Social Security benefits and the “death tax.”

Perry would also reduce the corporate income-tax rate to 20 percent. His plan points out that the current rate—28 percent—is well above the global average. “Bringing the U.S. tax rate more in line with America’s global competitors will increase incentives for companies to locate their new factories or hire new employees in the U.S.,” Perry’s plan says. A Perry administration would also adopt several new reforms—mostly tax cuts—for profits corporations earn overseas to encourage them to reinvest the money in the U.S. rather than keep it “locked up” elsewhere to avoid taxation.

To make up for the lower corporate rates, Perry calls for eliminating tax loopholes that allow many companies to evade their tax obligations almost entirely. “Due to the mind-boggling complexity of the tax code, large corporations can implement the most effective tax avoidance strategies money can buy, while American taxpayers are forced to send thousands of dollars to the federal government instead of spending it on their families,” he says. Perry’s plan offers no specifics, but he says corporate loopholes need to be “phased out over time.”

The tax reforms Perry proposes would cause a massive drop in federal revenue, so the government would have to cap spending at 18 percent of GDP. Perry believes slashing spending this drastically would put the U.S. on track to balance its budget by 2020. To accomplish that, Perry proposes requiring the president to sign every federal budget, permanently banning congressional earmarks, freezing all federal civilian hiring, and prohibiting any future bailouts.