Perry Ups Ante With Flat Tax Plan

Plan draws conservative contrast with Romney, but details bring skeptics.

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In his effort to reboot his struggling presidential campaign, Texas Gov. Rick Perry made a statement Tuesday morning with a starkly conservative flat tax proposal. The plan would set personal income and corporate taxes at 20 percent, would eliminate the capital gains and estate tax, and would be paired with a commitment, and eventually a constitutional amendment, to bring federal spending down to 18 percentof gross domestic product. The plan was crafted with the help of magazine publisher Steve Forbes, who used a similar plan in his unsuccessful runs for the White House in 1996 and 2000.

Already, it may have succeeded by drawing a sharp contrast with his chief rival, former Massachusetts Gov. Mitt Romney, whose 59-point economic plan has been attacked for being too complicated, and for stopping short of a single-rate flat tax. Perry's plan may shore up support from the anti-tax, libertarian-leaning side of the conservative movement. "It's better than anything on the table right now," says Grover Norquist, president of Americans for Tax Reform. Norquist had been critical of businessman Herman Cain's "9-9-9" proposal, which includes a 9 percent flat income tax but would create a new national sales tax. Chris Chocola, a former Indiana representative and current president of the Club for Growth, an anti-tax advocacy group which is a major player in GOP primary politics, praised Perry and blasted Romney for failing to offer up a similar plan. "I continue to be disappointed that Governor Romney has yet to embrace a flat or fair tax," Chocola said in a written statement. "He would be wise to avoid using class warfare when comparing his current proposals to those of Governor Perry or Herman Cain."

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But despite the support from die-hard anti-tax activists, the plan is raising questions from some conservatives. For one thing, like Forbes' plan, it's optional. Taxpayers could opt to keep their current rate, and whatever deductions they enjoy, rather than going into the new plan. "It undermines the claim that he's sweeping away the very complexity of the current code," says Alan Viard, an economist with the conservative American Enterprise Institute. "I was very disappointed to see that feature." Even if taxpayers opt into the new system, if they make less than $500,000 a year they can still keep deductions for charity, for interest on their mortgages, and for local and state tax deductions, annoying those who say that the United States needs to clear away all tax deductions. Daniel Mitchell, an economist with the libertarian Cato Institute, criticized the plan for continuing those deductions, but said it overall was an improvement. "It's no big surprise that it doesn't measure up to my idea of perfection," he says.

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The plan ensures that the government will collect less in revenue than it did before, Viard argued. Even if it weren't optional, the new tax rates would amount to an overall tax cut at a time when the government faces gigantic deficits. But because it is optional, in a way it's more of a series of targeted tax breaks than a total tax overhaul—those who would pay less in taxes would opt for the new system, those who would pay more would stick with the old. While that makes some activists such as Norquist happy—he's long advocated lowering taxes as a way to eventually shrink the size of government—Viard says it's dangerous to cut off government revenue while federal deficits continue to climb. While Perry also laid out some ideas of how to cut the federal budget, including eventually raising the eligibility age of Social Security, it's still not entirely clear how he could reduce spending by enough to cover the difference.

Despite the questions, Perry's flat tax proposal is likely just what his campaign needed, a chance to define himself as the serious conservative alternative to Romney. But he'll have to show he can master the details of complex policy before he wins over skeptics.