Perry unveils sweeping economic plan with flat tax and big Social Security changes
Republican presidential candidate Rick Perry unveiled a sweeping economic agenda Monday, anchored by a voluntary, 20-percent flat tax in place of the current graduated-rate income tax system.
The Texas governor also called for allowing younger income-earners to privatize their Social Security accounts, a controversial proposal that echoes President George W. Bush's failed 2005 attempt to overhaul the retirement program. Promising to balance the budget by 2020, Perry said he would cap federal spending at 18 percent of gross domestic product. He unveiled his proposal at a plastics manufacturing firm outside of Greenville, S.C. Tuesday after previewing it in a Wall Street Journal op-ed column the evening before.
The most significant feature of Perry's plan is the flat tax, which would impose a single rate of 20 percent on taxpayers regardless of income if they opt into the program. Taxpayers who don't want to pay 20 percent could keep their current rate. Current marginal income tax rates range from 10 percent to 35 percent, depending on income.
"The best representation of my plan is this postcard, which taxpayers will be able to fill out to file their taxes," Perry said, holding up a half-sheet of paper that represented what a tax form would look like under his plan.
Perry offered several proposals that appear designed to sweeten the offer for taxpayers -- and to counter criticism that the flat tax is regressive, taking a proportionally bigger bite from smaller incomes. His plan would preserve popular deductions for home mortgage interest and donations to charity for households earning less than $500,000 a year. It would increase the standard deduction to $12,500.
Perry's proposed tax form (PDF)
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But Perry would eliminate other tax breaks. He argued that a streamlined tax code, along with spending cuts and entitlement changes, would stimulate the economy. "The net benefit will be more money in Americans' pockets, with greater investment in the private economy instead of the federal government," he said.
Although critics deride it as unfair to lower-income Americans, the flat tax has long been a favorite of fiscal conservatives. Businessman Steve Forbes, who endorsed Perry on Monday, made it the hallmark of his presidential campaigns in 1996 and 2000, and it's backed by many congressional Republicans. Perry said his tax plan "embraces the world as it is, and not what liberal ideologues wish it to be."
Perry would lower the corporate tax rate to 20 percent, a 15-point reduction from the current rate and five points lower than that proposed by two of his rivals, former Republican governors Mitt Romney of Massachusetts and Jon Huntsman of Utah. He would also offer a one-time tax rate of 5.25 percent on repatriated earnings, which the U.S. Chamber of Commerce has estimated could bring $1 trillion in profits back to the United States.
"It's the kind of economic stimulus President Obama could have achieved if he wasn't hell-bent on passing big government schemes that have failed American workers," Perry said, one of many swipes at Obama in his address.
As promised, Perry's plan also included a five-pronged plan for entitlement reform that would protect existing benefits for current retirees and end borrowing from the Social Security fund. It would also allow younger workers to invest a portion of their payroll taxes in private accounts, an idea that drew applause from the crowd.
Perry would also allow local governments to opt out of the federal Social Security program and create locally-run programs for their employees. And, he said he would work with Congress to raise the retirement age, a potentially explosive idea. He said he would consider a similar plan for Medicaid, pledging to consider both an increase in the eligibility age and a change putting payments on a sliding scale based on income.
For Perry, the tax overhaul represents an effort to return into the good graces of many conservatives disappointed with a series of stumbling debate performances and policy apostasies on immigration policy. On Monday, just 10 weeks before the Iowa caucuses, his campaign announced the hiring six new staffers with national reputations and the launch of an ad campaign in Iowa, which holds the first caucus of the primary season in January.
In a nod to his audience, Perry accused the National Labor Relations Board of overstepping its bounds by telling the Boeing aerospace company it could not move a production plant from Washington state to South Carolina. He earlier made similar charges against the board, a move popular with many voters in the key Southern primary state.
Neither Romney nor Huntsman has called for a flat tax and Perry's 20-percent corporate tax rate is higher than former pizza executive Herman Cain's proposed 9-percent flat rate on both personal income and businesses. Perry's proposed cap on federal spending at no more than 18 percent of GDP is two percentage points lower than Romney's. And Perry said his plan isn't "the length of War and Peace," a swipe at Romney's rival's 59-point plan.
Elsewhere in the federal budget, Perry said he would cut $100 billion from non-defense discretionary spending in one year and criticized Obama for proposing "arbitrary cuts to defense spending," a reference to the bipartisan budget deal in Congress that would cut $1.5 trillion from the budget if a special committee fails to offer alternatives. He dubbed his plan "Cut, Balance and Grow," a nod to congressional Republicans, who have proposed a "Cut, Cap and Balance" budget bill.
"This is a change election, and I offer a plan that changes the way Washington does business," Perry said. "The great issue facing this nation is whether we have the courage to confront spending and the vision to get our economy growing again. We need a tax code that unleashes growth instead of preventing it, that promotes fairness, not class warfare, that sparks investment in America instead of overseas interests."
Analysis: Perry's Flat Tax Not a Simple Fix
