(Photo: REUTERS/Mary Ann Chastain)
Texas Governor and presidential candidate Rick Perry announced his “Cut, Balance & Grow” tax plan on Tuesday in a Wall Street Journal editorial and South Carolina speech. A tax code with similarities to a flat tax is the centerpiece of the plan. The announcement was overshadowed some when Perry raised the “birther” controversy over the weekend.
A pure flat tax would have everyone pay the same rate and do away with all deductions and credits. Perry's plan is not a flat tax, but would make the current tax code flatter than it is currently.
Perry's plan would give taxpayers the option of paying a 20 percent tax on income and reduce the number of possible deductions to only three – mortgage interest, charitable giving and state and local taxes. It would also increase the standard deduction to $12,500 for individuals, from $5,800 in 2011.
The plan would also eliminate all taxes on dividends, capital gains and inheritances. It lowers the corporate tax rate to 20 percent, from 35 percent, while eliminating all corporate tax deductions and credits.
Perry would also have the country move to a “territorial” system of corporate taxation where corporations only have to pay taxes in the country where the business is conducted. Currently, American corporations must pay taxes in the host country for overseas operations, then pay taxes again when profits are brought back to the country. Most modern democracies today have a territorial system of corporate taxation.
Since the U.S. does not have a territorial system, many American corporations leave some of their wealth in foreign nations to avoid paying taxes on it. Perry's plan would provide a temporary 5.25 percent tax on wealth brought back in to the United States by corporations.
“The best representation of my plan is this postcard,” Perry said as he pulled a piece of paper from his pocket. “Taxpayers will be able to fill this out and file their taxes on that. Each individual taxpayer will have a choice. You can continue to pay your taxes, as well as the accountants and lawyers, under the current tax system we got, or you can file your taxes on this postcard.”
Taxpayers who already pay less than 20 percent on their taxable income, would likely stick with the old system. The 25 percent rate, for example was for income over $69,000 in 2011. The increase in the standard deduction would mostly benefit those in the lower income brackets who most often use the standard deduction. Those in the upper income brackets would likely see a clear benefit and opt for the 20 percent rate. Those in the middle income brackets may not have a clear choice, which means they, or an accountant, would still have to calculate their taxes to determine which choice would benefit them the most.
Perry also proposes balancing the federal budget by 2020, mostly through spending cuts and capping growth in spending. It would cap federal spending at 18 percent of GDP.
Perry is in need of a boost to his fledgling campaign. He was once the front-runner in the race but rapidly declined in the polls after several poor debate performances. Larry Sabato, professor of political science at the University of Virginia, said on Fox News Tuesday that Perry would be "cooked and done" if his poll numbers do not bounce back after releasing his tax plan.
The tax plan announcement was overshadowed some by comments Perry made over the weekend about President Obama's birth certificate. In an interview with Parade magazine, Perry described a conversation he had with Donald Trump. Trump told him that he thought Obama's birth certificate was fake. When asked what he thought, Perry said, “I don’t have any idea. It doesn’t matter. He’s the president of the United States. He’s elected. It’s a distractive issue.”
In an interview on MSNBC Tuesday morning, Perry was asked about his comment. “It’s a good issue to keep alive. It’s fun to poke at [Obama],” Perry replied.