Sunday, October 23, 2011

Perry Set to Unveil Flat Tax Plan Sometime Next WeeK

Wanting to reinvigorate his Republican presidential campaign, GOP hopeful Texas Gov. Rick Perry is set to reveal his plan to simplify the federal tax code with a flat income tax rate. This is a proposal that has energized conservatives in the past but failed to gain mainstream support.

Perry entered the presidential race as the expected frontrunner in August but has stumbled in his first few debates. He is hoping his plan will recapture that early momentum his campaign had early on, much in the same way that Herman Cain’s 9-9-9 plan helped position him to the front of the GOP field. Lately however, Cain’s plan has come under intense scrutiny and intense criticism, forcing the former pizza executive to redefine the plan to make it fairer for the poor.

Perry campaign aides have yet to unveil details of his plan yet but Perry said this week his plan will be "flatter and fairer" than Cain's. Sarah Palin endorsed the plan, telling Fox News it’s “going to gain momentum.” But liberal groups have quickly criticized Perry's plan, saying it would raise taxes on lower- and middle-income Americans while giving breaks to the wealthiest.
While many variations exist, the main idea is to replace the current stair-step range of income tax rates with one rate, paid by everyone. Advocates typically call for eliminating some or all of the existing tax deductions, such as those allowed for mortgage interest payments, gifts to charity and some medical costs.

Perry's plan will differ from Herman Cain's so-called 9-9-9 plan because it will not call for a national sales tax. Cain, whose presidential bid has prospered lately, wants a 9 percent flat tax on personal and corporate income, as well as a 9 percent national sales tax. Criticisms of a flat tax focus on its full or partial elimination of the progressive nature of the current tax code. In a progressive system, higher earners pay higher tax rates on their income.
Under a pure flat tax, with no exemptions or deductions, individuals who earns $200,000 a year would pay exactly 10 times the amount of tax paid by someone who earns $20,000 a year. All income would be subject to one flat rate. Under a progressive system, even if there were no exemptions or deductions to help poorer people, the $200,000 earner would pay more than 10 times the amount of tax paid by the $20,000 earner. That's because he pays higher rates on the upper portions of his income.

Supporters of progressive income tax systems say the feature is important to social fairness because other taxes tend to be regressive. For instance, a 5 percent state sales tax hits lower-income people proportionately harder than high earners because they must spend a larger portion of their income on necessities. That leaves them less able to save, invest or otherwise protect their income from the sales tax. Payroll taxes, gasoline levies and other taxes also tend to be regressive because they essentially are flat.

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