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Rick Perry unveils flat tax
Republican presidential candidate Gov. Rick Perry holds up a postcard representing his flat tax plan at the ISO Poly Films factory on October 25, 2011 in Gray Court, S.C.
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Kai Ryssdal: One can -- without too much hard looking -- start to detect similar themes emerging as the Republican presidential campaign grinds on.
Today was Texas Governor Rick Perry's turn. He gave big speech about his economic plan down in South Carolina. The heart of it is an optional 20 percent flat income tax.
Perry's isn't the only flat tax in the mix. Herman Cain has his 9-9-9 plan. It all sounds simple enough, but Marketplace's John Dimsdale reports there will be some bumps along the way.
John Dimsdale: Flat tax proposals are nothing new. What's different with the Perry plan is people can choose the flat tax, or not. But if they pick the flat tax, they still get to keep deductions for mortgage interest, state and local taxes, and charitable contributions. Perry says one attraction of the flat tax is its simplicity.
Rick Perry: Central to my plan is giving every American the option of throwing out that three million words of the current tax code in order to pay a 20 percent flat tax on their income.
A 20 percent tax rate would be a big break for high-income earners who now pay 35 percent of their income to Uncle Sam. And 20 percent would be a tax increase for some low-income earners. That's the very definition of a regressive tax.
But Kevin Hassett, a former adviser to Republican presidential candidates, says Perry's plan exempts $12,500 of income for every person who files.
Kevin Hassett: If you have a large family, then you could have a significant amount of income before you pay any tax. Which means that it would be a lot more progressive than you might think.
Another attraction of a flat tax is that it rewards economic enterprise. University of Michigan economist Joel Slemrod says allowing entrepreneurs to keep more of their money means they have an incentive to earn more and invest in equipment or job creation. While the system we have now, he says, inhibits growth.
Joel Slemrod: Whatever people do to earn more income, whether it be invest in an education or work harder, a graduated tax system means the tax penalty to that goes up as you earn more income.
But a flat tax generates less revenue for the government. That's true for both Herman Cain's 9-9-9 plan and Perry's optional plan, which allows taxpayers to find the lowest tax rate available. And less revenue means cutting more government spending.
In Washington, I'm John Dimsdale for Marketplace.
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"A 20 percent tax rate would be a big break for high-income earners who now pay 35 percent of their income to Uncle Sam." What? Don't you know there are people who already believe this? Now that they've heard it on NPR, this misinformation will be cemented in their mind. I know it has been a few weeks, but I hope if you haven't already retracted this on the air, you'll do so soon. In fact, a story about what percentage the very rich REALLY pays, would be long overdue.
Slemrod should know better.
The graduated tax puts more money in the hands of people who will spend it, stimulating the economy. The flat tax puts more in the hands of those who will stash it away.
And then we could talk about the social justice of the flat tax, which helps the "haves" to have more, and the "have-nots" to have even less.
It's not always true that "a flat tax generates less revenue for the government." Any flat tax plan can generate as much revenue as its alternatives if the flat rate is suitably adjusted. Or are Cain and Perry locked into the rates they've proposed?
Dr. Slemrod should explain why during the 1950s, the U.S. had such high sustained growth during a period of high marginal tax rates on high incomes. And why didn't Mr. Dimsdale ask this question? Reporters should think for themselves and not be the megaphone for untruths. (Yes, I read Krugman.)
1) "That's the very definition of a regressive tax." Actually a 20% flat tax with no deductions would meet the definition of a proportional tax.
2) "But a flat tax generates less revenue for the government. That's true for both Herman Cain's 9-9-9 plan". A 50% flat tax would not generate less revenue. Cain claims his plan is revenue neutral because it closes loopholes.
3) James, you are so correct.
4) Martin, while right, you forgot to mention that capital gains are taxed at 20%, not 35%.
More detail is needed for a fair comparison between the current progressive system and a flat tax proposal. With the current system, my "net tax" after credits, deductions, etc. is actually about 8% of my total income. If I understand this correctly, the flat tax proposals do away with deductions and credits, meaning that you CANNOT compare the current 35% marginal rate to any flat tax proposal because of the absence of deductions and credits.
John Dimsdale was incorrect when he stated that “high-income earners…now pay 35 percent of their income to Uncle Sam.†High income earners only pay a 35 percent federal income tax rate on income in excess of $380,000. Their income below $380,000 is taxed at lower marginal rates, and some of it is not taxed at all. As a result, even the very richest Americans pay less than 35 percent of their income to Uncle Sam in the form of federal income tax.
I have come to expect misleading statements about tax policy from certain news outlets, but I never expected to hear such a glaring error on Marketplace.
There you go again . . . I mean, here we go again. Will conservatives ever get over Ronald Reagan and his supply-side economic policies? How many examples of failure do they need? The greatest disparity of wealth of any nation on earth, on the verge of international monetary collapse, a burst housing bubble, millions unemployed, and they’re breaking out the Laffer Curve and talking about business investment incentives and flat tax proposals. The sad part is that I’m sure it all sounds rational and “fair†to many. That’s because no one ever makes a good argument for a progressive tax system. We don’t tax “the rich†and corporations because we hate them or want a society of parasites (there are other authors out there, other than Ayn Rand); we tax progressively because the nature of capitalism is intrinsically unfair, rewarding on the basis of accumulated wealth, rather than merit—and because we prefer democracy to oligarchy. The myth that a laissez-faire capitalist system does this automatically, or that a flat tax will create a fairer system, is just that. Ironically, to create a truly free market society that rewards by way of merit, we need government, a progressive income tax, and public, democratic institutions.
Republican talking points...
Out of control deficit and debt? Rick Perry's answer: Reduce revenue!
Overly complex "3 million word" tax code? Rick Perry's answer: Add more!
Choosing between his new plan and the current code means doing both.
As for the flat tax "rewarding economic enterprise" - I also can't believe you regurgitated that nonsense. Firstly, Perry's plan is not really a flat tax. There are two marginal rates, 0% and 20%, with the cut-off varying depending on individual circumstances. Secondly, why stop at a flat tax, let's really encourage growth: 100% tax on the first $10,000 (and no deductions - those are for wimps), 75% on the next $40,000, 50% on the next $75,000, 25% on the next $150,000 and nothing on anything above that - now that's incentive!
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