Texas Gov. Rick Perry plans to unveil his fiscal and economic plan today in hopes of reviving his candidacy. I’ll have more to say once I see more details, but I have a few initial thoughts based on what he’s already outlined in a Wall Street Journal op-ed.
To start with, Perry’s proposed flat tax isn’t all that flat. One problem is that it’s optional, meaning that taxpayers would have the choice between remaining in the current tax code, or filing under a new “flat tax” with a 20 percent rate. Making it optional is a nod to the political reality that it would be harder to impose a flat tax immediately, because so many people have planned their lives assuming the various deductions in the tax code exist. From a policy perspective, it’s thorny though. We’d still be stuck with a bloated tax code that people could exploit, and nobody who benefits from it would be inclined to switch. It would also make it difficult to score from a budgetary standpoint, because it’s hard to predict how many people would choose each system. Though it’s a complicated idea, it isn’t totally unprecedented. Rep. Paul Ryan’s original “Roadmap for America’s Future,” which was highly touted by many conservatives, also made its proposed “flatter” tax optional.
Beyond the fact that the new rate is optional, Perry’s plan would also allow those earning under $500,000 to keep the deductions for mortgage interest, charity and state and local taxes. But that could exempt over 99 percent of taxpayers, effectively preserving some of the most expensive and distortionary elements of the current tax code, even for those who choose the “flat tax” option. This would seem to be an especially good deal for, say, a New York City family that owns an apartment and earns $499,000 per year.
In an attempt to add some progressivity to the code, the plan ups the standard deduction to $12,500 for individuals and dependents.
It also gets rid of taxes on estates, some dividends and long-term capital gains, and also simplifies the corporate tax code, bringing the rate down to 20 percent.
On the spending side, Perry promises to balance the budget by 2020, cap spending at 18 percent of gross domestic product and pass a Balanced Budget Amendment. The problem is that it’s hard to see how his plan would control entitlement spending, at least based on the op-ed. Perry would allow younger workers to opt out of the current Social Security system and invest in personal accounts, which would be good. However, Perry doesn’t mention any proposals to rein in the costs of Medicare, the primary driver of our nation’s long-term debt crisis. Nor does he mention in his op-ed what he would do about the employer tax exclusion for health care, which is one of the main factors driving up underlying health care costs, which in turn add to the strain on our budget.
Policy wonks will debate various aspects of the plan in the coming days, but the bigger question for Perry politically is whether he can explain everything to the general public. It’s very complex, with a lot of moving parts. Thus far in the campaign, Perry hasn’t demonstrated the capacity to process details and debate the finer points of policy. An op-ed or a prepared speech is one thing, but will Perry be able to defend the plan in interviews, or under fire in debates? Based on what we’ve seen from him so far, that’s highly unlikely.
