Oct. 25, 2011 Reactions to Gov. Perry's Flat Tax Plan

For years before the economic crisis, the economy grew while middle class families struggled with stagnant wages, sluggish job growth, and greater economic insecurity. While those at the top did well, middle class families worked harder and harder and kept falling behind. Getting Americans back to work is job one, but our work doesn’t end there. We have to create more opportunities for families to work hard and get ahead. This will require investing in education, innovation, and infrastructure—the types of investments that create jobs today and restore middle class security.

It’s time to focus on the basic values that have always been at the heart of American prosperity: making sure that hard work pays, responsibility is rewarded and everyone from Main Street to Wall Street does their fair share. We cannot restore shared prosperity and middle class security by returning to the failed strategies of the past that say that everything will be fine if we just give another tax cut, special break or additional benefit to those at the top. Those strategies have failed and the overwhelming majority of Americans have been coping with the negative consequences of those policies for a decade.

Tomorrow, Governor Rick Perry will unveil his economic plan, featuring a “flat tax” plan that radically restructures the tax system and shifts a greater tax burden onto the middle class. The Perry tax plan comes on the heels of Governor Mitt Romney’s economic plan, which doubles down on the failed strategies of the past with large tax cuts for corporations and wealthy Americans while delivering little or nothing to most middle class families.

Both the Romney and Perry economic plans embrace a far-right vision for our tax code. They share elements with plans offered by congressional Republicans, which independent economists believe would fail to accelerate job creation now. Both plans would cut taxes on wealth and investment income, shifting the tax burden onto work and wages. Both plans are likely to be costly, driving up the deficit at a time of historic fiscal challenges. And under both plans, the most fortunate Americans would pay less while the middle class would pay a higher share.

In the past, Romney criticized flat tax proposals—calling one “a tax cut for fat cats”—but more recently has said, “I love a flat tax.”1 While the economic plan he unveiled almost two months ago did not propose a flat tax, it is also likely to shift the tax burden onto the middle class. The Romney plan included well over $1 trillion in new tax cuts, over and above the cost of continuing expiring tax breaks.2 Romney proposed three tax cuts, in addition to extending current policies.

The largest tax cut would go to corporations. Romney promised to immediately reduce the corporate tax rate from 35 percent to 25 percent, while exploring further reductions paired with steps to remove deductions and credits. The independent Tax Policy Center has estimated that this policy would cost over $100 billion a year.3

President Obama also believes in cutting corporate tax rates to make American businesses more competitive. But while Romney’s approach would add close to a trillion dollars to the debt, the President’s plan would end deductions and close loopholes to ensure that corporations continue to contribute their fair share of taxes.4

Romney’s other two tax cuts are focused on wealth and income earned from wealth, rather than on the type of income that middle class families generate—income from actual work. He would eliminate the estate tax completely, eliminating taxes on inherited wealth no matter how large at a cost of over $15 billion a year beyond the cost of continuing current policies.5 And he would eliminate income taxes on capital gains, dividends, and interest for all taxpayers with adjusted gross incomes below $200,000 a year. Although independent analysis of this plan does not yet exist, data from the Tax Policy Center suggests that its costs would approach $25 billion a year.6

Because most middle-class families generate their income from working, they will see little or no benefit from these tax cuts. While more sophisticated analyses will no doubt follow, existing estimates from the Tax Policy Center reveal that:

•Nearly half—49 percent—of the benefit of corporate tax cuts in 2011 would go to the 0.3 percent of American households earning over $1 million a year.7 Only 12 percent would go to the 82 percent of households earning less than $100,000 a year.

•Eliminating the estate tax would be even more regressive. Almost 67 percent of the tax cuts in 2011 would go to families earning more than $1 million a year, while families earning less than $100,000 a year would get next to nothing.8

•The tax break on unearned income is limited to families with income below $200,000, but about three-quarters of these families already pay no investment taxes. A typical middle-class family with $40,000 to $50,000 in income would get a tax cut worth only $54 in 2011.9 As Newt Gingrich observed, the Romney plan would “limit capital gains tax cuts only to people who don’t get capital gains.”10

Romney also praised Paul Ryan’s budget plan, which included large tax cuts for the most fortunate families.11 And he opposes President Obama’s proposal to extend and expand payroll tax relief for American workers, calling it “temporary little Band-Aids” at a recent presidential debate.12

Tomorrow, Governor Rick Perry will unveil an economic plan with a radical restructuring of the tax code—a “flat tax”—at its center.13 While the details of Perry’s plan will be announced tomorrow, flat tax proposals reduce the contributions of the most fortunate households, shifting the burden onto the middle class.

Under a flat tax, all Americans would pay the same tax rate, abandoning the progressive principle that the most fortunate Americans can afford to contribute more. Flat tax plans typically eliminate a host of tax deductions and exemptions intended to help families afford expenses that are essential to middle class security like health insurance, home mortgages, charitable contributions, and child care. Many flat tax proposals also eliminate all taxation on capital gains and other investment income so that the wealthiest, who generate much of their income from investments, rather than work, see huge gains.

As a result, the Perry plan can be expected to share the same basic characteristics of the Romney plan, including large tax breaks for wealthy and high-income families and a higher share of the tax burden for the middle class.

6 Tax Policy Center, “Exempt All Capital Income from Taxation,” Table T11-0190, June 16, 2011, available at: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3071. The table classifies households by cash income, which is typically higher than adjusted gross income, and therefore understates the tax cut’s cost and benefit to high-income taxpayers.

PRESS RELEASE from Jon Huntsman for President
October 25, 2011

Huntsman: Perry's Plan Doesn't Fix Broken Tax System

Manchester, NH - Gov. Jon Huntsman released the following statement responding to Gov. Rick Perry's tax plan:

"Unlike my plan to clean out the tax code entirely, Governor Perry takes the easy way out by leaving in place a broken system. Because his plan is optional it will maintain our outdated system of deductions and credits. I have offered a pro-growth plan that will actually reform our tax code for the 21st Century by eliminating loopholes, deductions, and corporate welfare entirely."

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Democratic National Committee
October 25, 2011

Fact Check: Rick Perry, Like Mitt Romney, Released A Tax Plan That Benefits The Wealthy At The Expense Of The Middle Class

Please see below for a response to Rick Perry’s tax plan he released today.

RICK PERRY’S PLAN WOULD SHIFT THE TAX BURDEN AWAY FROM THE WEALTHY & ON TO THE MIDDLE CLASS

Jonathan Bernstein: Rick Perry’s Plan Would “Shift The Tax Burden From The Rich To Middle-Class And Poorer Taxpayers.” “My favorite thing about Perry’s plan is that not only would it shift the tax burden from the rich to middle-class and poorer taxpayers, but it would also shift the burden of tax preparation away from the rich. It is, after all, presumably wealthy Americans who would opt for the ‘flat’ choice. Middle class Americans will be far less likely to opt for it, because their current effective tax rate — once you figure in deductions and exemptions — is lower than it would be under Perry’s plan. So the wealthy will get the simplified ‘postcard’ system, while most in the middle class will be stuck with the current complex system. So the Perry plan boils down to tax cuts and tax simplification for the rich, while everyone else gets extra complexity and, for most people, no change (except that if the Earned Income Tax Credit is also repealed, the poor will be worse off). It’s hard to believe that’s a winner, even among Republican primary voters. All ‘flat tax’ proposals wind up favoring the rich in some way. The genius in Perry’s proposal is that he manages to extend that even to the paperwork.” [Bernstein, Washington Post, 10/25/11]

Perry’s “Optional” Flat Tax “Is Only A Tax Cut For Higher Level Income Earners, Substantially Reducing Their Tax While Having Little Impact On The Middle And Lower Income Tax Brackets.” “Perry’s tax program attempts to get around one of the political issues that has been plaguing Herman Cain’s 9-9-9 proposal, by allowing individuals to take either the flat tax or to keep their current tax rate, hoping the opt-in will allow him to avoid the charges that he’s raising marginal rates on the poor and the middle class. Effectively, the ‘optional’ flat tax is only a tax cut for higher level income earners, substantially reducing their tax while having little impact on the middle and lower income tax brackets. It would also aid high income earners by ending taxes on dividends (income generated from owning substantial holdings in stocks that pay a dividend) and capital gains.” [Houston Chronicle, 10/25/11]

Perry’s Tax Proposal “Would Do Little To Help Poor And Middle Income Americans.” “Perry says that this new tax structure, which essentially creates two parallel tax codes, would simplify things and help to aid economy growth by permanently reducing taxes. It’s important to point out that personal income tax rates are at some of their lowest levels since the end of World War II, and are currently far lower than when either Reagan or Clinton were president. On a first reading, it appeals that the tax cuts under Perry’s proposal would do little to help poor and middle income Americans, who have seen their real incomes decline over the last decade, while benefiting wealthy Americans, who have seen their incomes rise significantly.” [Houston Chronicle, 10/25/11]

Perry’s Tax Plan Would Cut Corporate Income Taxes, But It’s “Unclear If Allowing Them To Keep Even More Money Would Encourage Them To Invest Or If They Would Continue To Sit On It.” “Perry’s tax proposal would lower the U.S. corporate income tax rate from 35% to 20%...It’s also unknown how much of an impact lowering the corporate tax rate would have on economic growth. The current corporate tax code is the legal equivalent of swiss cheese and many companies like General Electric pay nothing at all. American corporations are also sitting on a mountain of cash, estimated at more than $2 trillion dollars, and it’s unclear if allowing them to keep even more money would encourage them to invest or if they would continue to sit on it.” [Houston Chronicle, 10/25/11]

MITT ROMNEY’S TAX PLAN PROVIDES MORE BREAKS TO THE RICH AND SPECIAL INTEREST WHILE DOING NOTHING FOR THE MIDDLE CLASS

ROMNEY’S PLAN WOULD ONLY GIVE A TYPICAL MIDDLE CLASS FAMILY A TAX CUT OF $54 A YEAR…

A Typical Middle Class Family Nationwide Making Between $40,000-$50,000 Would See An Average Tax Cut Of $54 if Romney’s Proposal To Eliminate Taxes On Capital Gains, Interest, And Dividends Were in Place in 2011. Over 70 percent of these families would see no benefit at all. [Tax Policy Center, 6/16/11]

…BUT WOULD LOWER TAXES ON THE WEALTHIEST AND CORPORATIONS AND ADD TO THE DEFICIT
Romney Would Keep The Bush Tax Cuts For The Wealthiest Americans. “Mr. Romney said he would keep the Bush-era income-tax cuts unchanged. Mr. Obama wants the cuts, which were set to expire this year, to disappear for the wealthiest taxpayers.” [Wall Street Journal, 9/6/11]
·         Extending The Bush Tax Cuts Is Worth $700 Billion to The Top 2 Percent. [OMB, The Budget for FY2012, Table S-2, pg. 173]
Romney Called For Lowering The Corporate Income Tax Rate To 25% From The Current 35% Though Tax Breaks Allow Many US Companies To Pay Little Or No Corporate Tax. “Mr. Romney called for lowering the corporate income tax to 25% from the current 35%. That rate is high compared with other advanced economies, but tax breaks allow many U.S. companies to pay little or no corporate tax. Mr. Romney said a lower rate would encourage companies to keep more operations within the U.S.” [Wall Street Journal, 9/6/11]
·         Cutting the Corporate Tax Rate To 25 Percent Would Cost $915.5 Billion. [Analysis of the Paul Ryan Budget Plan, Tax Policy Center, 4/7/11]
Romney Would Eliminate The Estate Tax. Romney “would seek a balanced budget amendment to the Constitution, cut non-security discretionary spending by 5 percent, eliminate the estate tax and undo the 2010 health care overhaul championed by President Barack Obama.” [AP, 9/6/11]
·         Eliminating The Estate Tax Would Cost $178 Billion. The CBO/JCT estimates Mitt Romney’s proposal on the estate tax would cost $178 billion. [CBO, “Reducing the Deficit: Spending and Revenue Options, March 2011]
ROMNEY OPPOSED OBAMA’S PLAN TO GIVE THE AVERAGE WORKER $1500 A YEAR IN TAX CUTS CALLING IT A “BAND-AID”

Romney Said Of The Payroll Tax Cuts In President Obama’s Jobs Act: “I Don’t Like Temporary Band-Aids.” At the Republican primary debate Romney was asked about President Obama’s economic plan. Goldman: “So you would be OK with seeing the payroll tax cuts?” Romney: “Look, I don't like temporary little Band-Aids, I want to fundamentally restructure America's foundation economically.” [Republican Primary Debate, Bloomberg, 10/11/11]

·         Under Obama’s Plan A Person Making $50,000 A Year Would Get A Tax Cut Of $1,550 in 2012. “Under Obama's plan, workers making $50,000 a year would see their take-home pay boosted by $1,550 next year; those making $100,000 would get $3,100.” [AP, 9/9/11]

PRESS RELEASE from Newt 2012

October 25, 2011

LET'S BUMP PLANS: GINGRICH CALLS ON PERRY TO COMPARE FLAT TAX PLANS

Atlanta, GA - Newt Gingrich today on Twitter called on Governor Perry to "bump plans" and compare flat tax plans:

@newtgingrich: .@GovernorPerry If u r going to bump plans w/ my friend Herman, then you can bump plans w/ me. Let's compare flat taxes bitly.com/rMiSA0

A comparison of the Gingrich and Perry plans can be found here:

Gingrich's Plan Far Bolder than Perry's Plan and Will Lead to Far More Robust Job Creation and Capital Investment in United States

	Gingrich	Perry	Verdict: Gingrich Plan Better
Rate	15%	20%	Gingrich has advocated for several years an optional flat tax rate of 15%, which when coupled with Gingrich’s bold entitlement and regulatory reforms, will usher in another era of booming economic growth and new, higher-paying jobs. The Perry rate of 20% is higher than the 17% that Steve Forbes proposed in his 1996 and 2000 presidential campaign.
Who Gets to Make Deductions for Charitable Giving and Home Ownership??	Everyone	Families making less than $500,000/year	By creating two separate classes of taxpayers, the Perry plan buys into the same class warfare that characterizes the Obama and Romney economic plans. The fact that there are still two brackets – even under a supposed “flat tax” plan – calls into question whether this is really a flat tax at all.
State and Local Tax Deductions	Not deductible in optional flat tax plan	Deductible in optional flat tax plan	The Gingrich plan has a lower rate so less need for state and local deductions. The deduction is a federal subsidy for states to adopt higher state and local taxes. Removing the subsidy would lead states to reduce state and local taxes, or adopt their own flat tax reforms. The Perry plan erodes states’ competitive advantages by making state and local taxes deductible in his optional flat tax plan.
Who Benefits from Elimination of Capital Gains Tax?	Everyone	Depends whether capital gains is long term or short term. Perry’s plan eliminates cap gains only for long term.	The Gingrich plan maximizes the capital investment and job creation that will accompany the elimination of this tax. The Perry plan only goes halfway, and by levying up to 35% tax on short-term capital gains, it will discourage investment, venture capital, and new jobs creation.
Corporate Income Tax	12.5%	20%	The Gingrich plan will create a boom of new American entrepreneurship by dramatically cutting the corporate tax rate to one of the lowest in the developed world. The Perry plan relies upon a short term “tax holiday,” then only drops the corporate tax rate to 20% -- only average in the developed world, and still over 20% higher than our closest economic competitor Canada, which has a rate of only 16.5%. Gingrich rate makes U.S. more competitive than Canada.
Payroll Taxes	Eventually replace payroll tax with personal accounts, financing better results	No change in existing payroll tax	Gingrich supports personal savings investment and insurance accounts that would eventually be expanded to finance all of the benefits now financed by the payroll tax, allowing that tax ultimately to be phased out altogether.
Record in Achieving Dramatic Jobs and Economic Recovery at the National Level?	Yes. Substantial. See record at right.	None.	Speaker Gingrich Record (1995-1999): • Eleven Million New Jobs • Four Straight Balanced Budgets for the First Time Since the 1920s. • Unemployment rate of 4.2%. • Federal Spending Held to the Slowest Growth Rate Since the Early 1950s (avg. of 2.9% a year). • Venture capital investments grew 500% in three years and manufacturing sector grew to 17.43 million jobs. • Bipartisan Welfare Reform that Lifted Millions from Poverty. • Over $400 Billion of National Debt Paid Down

Gingrich's Advocacy of the Flat Tax Dates Back to 1997

From Item 2 in Gingrich's 21st Century Contract with America (September 29, 2011)
All tax filers would be given the option to pay their income taxes subject to current income tax provisions or to pay under a lower single rate of taxation with limited deductions.

Release of Jobs and Prosperity Plan Upon Announcement of Campaign (May 13, 2011)
Move toward an optional flat tax of 15% that would allow Americans the freedom to choose to file their taxes on a postcard, saving hundreds of billions in unnecessary costs each year.

In his 2010 book, To Save America
To generate another lasting economic boom, we need fundamental tax reform, similar to that proposed by Steve Forbes. We should adopt the optional 15 percent flat tax with generous personal exemptions.

In his 2008 book, Real Change
This concept of an optional flat tax was developed by Steve Forbes when his flat tax campaign was undermined by criticisms that it would take away popular tax breaks. Steve Forbes and Stephen Moore have both proposed giving American taxpayers an opportunity to choose simplicity versus complexity and a single rate over a lot of deductions. They call it the free choice flat tax, and it's an idea whose time has come.

In a 2008 National Review op-ed with Texas Representative Michael Burgess
An optional flat tax would save taxpayers more than $100 billion per year and reduce compliance costs by over 90 percent. This is a stimulus package that would have an immediate effect on our American economy.

In Foreword to Steve Forbes' 2005 Book Flat Tax Revolution
I believe there is a real opportunity for a similar grass roots revolution imposing the flat tax on Washington. As people learn how much money and time they can save through a flat tax they are going to demand a simple alternative to the complexity and uncertainty of the Internal Revenue Service. As people spend hours in frustrating and seemingly endless paperwork and record keeping and preparing they are going to demand the freedom for their own time offered by a flat tax....As people watch the endless maneuvering of the lobbyists and the special interests they are going to demand the fairness of a flat tax.

As Speaker of the House in 1997
There are things I would like to do like a flat tax with virtual elimination of the IRS.

Contact: R.C. Hammond