Rick Perry Tax Plan Means "Substantial" Revenue Loss for U.S. Government

By: Brian Montopoli
By: Brian Montopoli

The tax plan put forth by Republican presidential candidate Rick Perry would mean a significant reduction in how much money the government takes in, an independent economic expert said Tuesday.

Perry is offering taxpayers two choices - either stick with the current tax system or opt into a new system in which they pay a 20 percent flat income tax. That incentivizes those who would pay less under the current system to stick with it, and those who would pay less under the flat tax plan - largely Americans on the upper end of the income scale - to opt for the new plan.

That would add up to a "substantial" decrease in revenues, says Ted Gayer, the co-director of the Economic Studies program and a Senior Fellow at the Brookings Institution.

Perry has yet to lay out all the specifics of the plan, which makes it difficult to estimate its full impact. But "it's clearly going to be a reduction in revenues, I think fairly substantial," said Gayer. Many conservative Republicans want to reduce the role of government in society in part by starving it of funds.

In addition to allowing Americans to stick with the current tax code, Perry is maintaining a number of deductions under his flat tax plan, including deductions for home mortgage interest and donations to charity. That cuts against one of the key benefits of a flat tax plan. Proponents of a flat tax say it works because it simultaneously makes the pool of taxpayers larger and makes more kinds of income taxable by eliminating deductions, a concept referred to as "broadening the base." The broadening is diminished under Perry's plan because many of the current deductions are kept in place.

By giving taxpayers the right to stick with their old plan, Perry can argue that he is not raising taxes on the poor and middle class. Herman Cain modified his "9-9-9" plan after critics noted that it amounted to a tax increase for as many as 84 percent of Americans; Perry can simply say that if you like your current tax rate, you can keep it.

What Perry's plan boils down to is a tax cut for the highest-income Americans, who currently pay a top marginal income tax rate of 35 percent, and no tax change for those who don't opt for the new system.

Perry argues that his plan simplifies the tax code, saying Tuesday that taxpayers will simply need to fill out a postcard to file their taxes. But since they will need to decide between the old system and the new one, it won't be quite so simple for many Americans.

"It kind of undermines the whole we're making your taxes simpler argument, because you still have to go through both systems to see which one is best for you," said Gayer.

Perry vowed to balance the budget by 2020 and cap on federal spending at no more than 18 percent of Gross Domestic Product. Under current policy forecasts, the United States will be spending 26 percent of GDP in 2020 and 34 percent of GDP by 2035. Perry would need to dramatically slash federal spending to meet his 18 percent goal.

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  • by me Location: here on Oct 26, 2011 at 11:32 AM
    "Too many wise American voters won't forget what got this broke so fast was the policies indoctronated under former Republican Pres. G.W. Bush Administration." You Sir, made me laugh. Thanks!
  • by Obama-4 More Years! Location: Leon Co. on Oct 26, 2011 at 08:07 AM
    Geeze, TeaParty & Repubs rejects Pres. Obama's bailouts for banks, GM, and Cash for Clunkers, and now student loan debt, but Perry and Cain's tax reform benefits only wealthy (just like GW Bush) and raises taxes on the middle and lower working class. Loss of tax revenue is welfare for the wealthy. No need to worry, Cain and Perry are history because Romney will win the Presidential Primary. The race will be close but there are not enough wealthy to put Cain or Perry on top. Perry was once a democrat, gives college tutition breaks to illegals and Cain has insane 9-9-9 tax plan that hurts the middle-lower class. Voters won't care about Romney being Morman, so is Orrin Hatch and others in Congress, who cares. They will bank on Romney's experience as gov. of Mass., a sucessful businessman having a clean family background, and his plans on putting Americans back to work. Romney could run into trouble with some southern angelical Bible belt states but still it won't be enough to matter. Pres. Obama will most likely narrowly slide by and take the White House again. Too many wise American voters won't forget what got this broke so fast was the policies indoctronated under former Republican Pres. G.W. Bush Administration. The financial fallout has been so massive, even though much progress has been made, Pres. Obama needs more time to fix our economy.
  • by Sigh... on Oct 26, 2011 at 07:39 AM
    I say get rid of government all together! Welcome to the United States of Walmart! Where the only thing you can buy has to come from a walmart! Super-corporation power! Brought to you by the deregulation of the united states government.
  • by mc on Oct 26, 2011 at 07:38 AM
    A loss of revenue for the Govt. What a shame, The American people have taken a loss of revenue to fund the worthless programs of liberals for years. We are told that we have to tighten our belts and do with less just because some in Govt. want to spread the wealth around. Why shouldn't govt. do with less?. Fund only what is really needed not all of these social programs.The social issues should be done by Churches and the people themselves not govt.God will bless America if we don't turn from Him and rely on Him and not Govt. for our needs. And work with our hands and not be a burden to others.
  • by conservative democrat on Oct 26, 2011 at 07:13 AM
    to God Bless America @ 8:31pm get off the tea and focus, this article is about rick perry not President Obama, and God will bless America when America blesses God!!
  • by Jack Straw Location: Wichita on Oct 26, 2011 at 06:53 AM
    Get this people - EVERY Republican tax plan means a loss in revenue for the government and an increase in wealth for the richest. Think "GW BUSH" ...
  • by dog Location: gone on Oct 26, 2011 at 06:44 AM
  • by Laughing Christ on Oct 26, 2011 at 04:58 AM
    Fine. All the lost revenue must come from the military budget.
  • by God Bless America Location: Tally on Oct 25, 2011 at 05:31 PM
    With the approval of the Obama administration, an electric car company that received a $529 million federal government loan guarantee is assembling its first line of cars in Finland, saying it could not find a facility in the United States capable of doing the work. People to Obama...QUIT!
  • by too much government on Oct 25, 2011 at 04:42 PM
    if we dont stop FEEDING the government an excess of hard earned money our liberties will dwindle from now on. STOP WASTING AND SPREADING THE WEALTH!!
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