Texas Governor Rick Perry gives the broad strokes of his flat tax plan in The Wall Street Journal today. The key deets:
—A choice between a new, flat tax rate of 20 percent or their current income tax rate.
—The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.
—Abolishes the death tax once and for all, providing needed certainty to American family farms and small businesses.
—Lowers the corporate tax rate to 20 percent—along with a tax holiday for foreign earnings—and moves toward territorial taxation.
—Eliminates the tax on Social Security benefits.
—Eliminates the tax on qualified dividends and long-term capital gains.
Oh, and the Perry Plan also promises a balanced budget by—you guessed it—2020, while reducing spending to 18 percent of GDP. (Need many more details on those.) The good in the plan is obvious. It creates a flattish consumption tax that reduces penalties on work, saving, and investment. That could add at least a half percentage point to long-term GDP growth going forward with an immediate boost from reduced business/investor/consumer uncertainty. And if it does kill the healthcare tax exclusion, that would go a long way toward creating a consumer-driven healthcare market.
What I don’t like: a) It keeps the market-distorting, revenue-gobbling mortgage interest deduction; b) making it optional seems gimmicky; c) it does nothing about the payroll tax such as uncapping it and then lowering it; d) if it is not revenue neutral on a static basis (and I am guessing it is not), the media will kill it. I look forward to getting more details later today.