The governor of Texas, Rick Perry, has an op-ed in the Wall Street Journal sketching his tax plan:
The plan starts with giving Americans a choice between a new, flat tax rate of 20% 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. This simple 20% flat tax will allow Americans to file their taxes on a postcard, saving up to $483 billion in compliance costs...My plan also abolishes the death tax once and for all...we will lower the corporate tax rate to 20%—dropping it from the second highest in the developed world to a rate on par with our global competitors. Second, we will encourage the swift repatriation of some of the $1.4 trillion estimated to be parked overseas by temporarily lowering the rate to 5.25%...We will eliminate the tax on qualified dividends and long-term capital gains.
Governor Perry, by moving to a flatter tax system with lower rates, is headed in the right direction. And his plan should be judged by the full plan rather than his op-ed summary. Even so, the summary raises some questions, among them:
- A 20% federal corporate tax rate would still be significantly higher than Canada's, which is 16.5%; Ireland's, which is 12.5%, or Switzerland's, which is 8.5%. And most American companies are subject to additional corporate income taxes at the state level as well. Shouldn't we aim for a corporate tax rate that is not just "on par" with our global competitors, but attractively lower than our global competitors, so that we can lure businesses here?
- Governor Romney's tax plan has been criticized for eliminating capital gains taxes for taxpayers making under $200,000 a year but not for those earning more than that. You lift the threshold to $500,000 a year, but you still treat those earners differently, apparently eliminating their mortgage interest, charitable and state and local tax exemptions. If it's a flat tax, why not actually make it flat, and treat everyone the same, no matter what their income is? President Obama is going after "millionaires and billionaires," but Governor Perry is going to go after 500-thousand-aires by taking away their mortgage and charitable deductions? Why not leave the dividing to Obama and Occupy Wall Street?
- If a virtue of this plan is simplification, why not repeal the current tax code rather than layering on this flat tax as an option? We've already got the existing tax code and the alternative minimum tax. Your plan would force everyone through a third calculation, the Perry flat tax. If the goal is simplification, why not just have everyone pay the Perry flat tax rather than just making it a "choice."
- Instead of lowering long-term capital gains and dividend taxes to zero, why not take the Reagan approach at tax ordinary income and capital gains at the same low rate? That way some heir or lottery winner with a brokerage account isn't taxed at zero, while someone who gets up early in the morning and labors for a living is taxed at 20%. I understand the argument about double or triple taxation, but you could get the corporate and the individual income rates lower than 20% if you brought the dividends or long-term capital gains rates up above zero. Again, if it's a flat tax, why not actually make it flat, and treat everyone the same, whether their income is from wages or from dividends and capital gains?