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Perry’s Path to Victory: The Flat Tax

By: Freedoms Truth (Diary)  |  October 13th, 2011 at 07:14 PM  | 

RESIZE: AAA

Texas Governor Rick Perry chances for winning the Republican nomination are looking more imperiled now than ever, with poll numbers showing Herman Cain as the rising star, taking much of the conservative and Tea Party support that was briefly his. Beset by stories about rocks, religion, in-state tuition, and changes of heart about what he said in debates, Perry has been out of his groove and blown his initial lead.

Perry has to do two things and one last chance before the calendar and the race dynamics chew up his chances. The first is get a clear, substantive and distinguishing conservative agenda out there, to show people what they will get if he wins. The second is to articulate to show he can be a communicator of our conservative agenda – back to the main fiscal and economic  issues that are his strengths.

Perry’s message has to contrast with the two other real candidates in the race at this point – Cain and Romney.  Taxes is his opportunity. In Romney, we have a ’59-point’ plan that is so many points because it is so small. It’s a plan to negotiate and tinker. Cain’s 9-9-9 is the hot, bold plan. But with a sales tax being added, the viability and sellability of that plan is being questioned.  It’s both interesting and encouraging that Perry is leaning on Flat Tax proponent Steve Forbes for advice:

Rick Perry, who will unveil his economic plan starting with an energy speech on Friday, did not get a chance to answer that question during the New Hampshire debate. But his campaign told me Wednesday that Steve Forbes is among those advising the Texas governor. Forbes, chairman and editor in chief of Forbes Media, ran for president in 1996 and 2000 and pushed both times for a flat tax, private Social Security accounts, and medical savings accounts.

http://powerwall.msnbc.msn.com/politics/the-campaign-whisperers-1704229.story

When Steve Forbes proposed the Flat Tax in the 1990s, Mitt Romney got so upset about it, he decided to put an ad out attacking the proposal. Romney’s capital gains rate cutoff is very “unflat tax” and locks in place our current progressive-tax complexity and burden. If Perry makes the Flat Tax the centerpiece of his economic plan, he can contrast with Romney, and then bring in other bold-yet-realistic conservative agenda items to round out a full economic program:

  • Tax reform – a flatter, fairer system via the Flat Tax.
  • Energy independence via drill now and ‘all of the above’ energy policies.
  • Entitlement Reform via Social Security choice.
  • Balancing the budget and controlling spending via BBA, and ‘cap and balance’. Reassert Federalism by returning money and decisions to states.
  • Regulation and federal tort reform – repeal Dodd-Frank, etc.
  • Healthcare reform – repeal Obamacare, replace with Healthcare Freedom Act (MSAs, buy insurance across state lines, etc.)

Several items will be “gimme” items that all candidates agree on, but the Flat Tax is still out there as an idea, unowned by any candidate. When we talk about side issues, we have “lost the plot” on what 2012 should be about. When we over-focus on one idea, like 9-9-9, we focus on a tree while forgetting the forest. All of these ideas will have to tie back to “Get America Working Again”, and if they do, you have a program not just for a primary, but a program to win an election and a mandate.   Perry  can offer a realistic “I have done conservative bills before, I can do this conservative agenda” approach that will contrast with those who havent governed, and those who have governed but not conservatively.

Is he up for it? I am hopeful that he does plan to roll out a substantive agenda and that he is talking to the right advisors.

 

COMMENTS

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  • westcoastpatriette

    if Perry’s plan to be unveiled on Friday isn’t nearly identical. The only thing on the list I haven’t heard him espouse already is the Flat Tax. And I see no reason why it would not appeal to voters right now. In my opinion, the Flat Tax is a less threatening change than Cain’s 9-9-9 plan–which as you stated, has that nasty new federal sales tax. We shall see.

    • http://travismonitor.blogspot.com Freedoms Truth

      But it will bring much of the benefits of tax simplification.

      Pareto-wise, getting 90% of the gain with 20% of the dispruption is a good tradeoff.

  • Scope

    as to his 999 plan. If he eliminates the payroll tax (SS and Medicare) will those entitlement programs then be totally funded by the federal government coffers as a cradle to grave welfare expense? I know Cain talked about the Chilean model for SS I believe, but what happens in the meantime to fund the entitlements until entitlement reform can be enacted?

    Please will a Cain supporter explain to me exactly what his plans are for the “Empowerment Zone” tax breaks?

    • http://travismonitor.blogspot.com Freedoms Truth

      … if they abolish the payroll tax.

      To me, that’s a feature not a bug. We have already abused payroll taxes to fund general revenues and we are about to do it in reverse. We need to expunge the myth by building a new system and funding the ‘grandfathered’ statu quo retirees from genl revenues.

      Cain needs to flesh out what he means by “chilean model”.

      Oh, and ?Empowerment Zone? tax breaks dont make sense in a 9-9-9 world.

    • Aaron Gardner

      No sense in bringing that argument here.

    • defenseconservative

      but I shall try to answer your question anyway.

      A credible economist has scored it as revenue-neutral; however, it is obvious that if you abolish the payroll tax, you will have less money with which to fund entitlement programs. And then, you will have only 2 choices:

      1) Abolish, or at least radically reduce the costs of, entitlement programs; or
      2) Abolish all discretionary spending, including military spending.

      The “Empowerment Zones” are meant to be areas chosen by politicians, on the basis of political criteria (as with the distribution of pork dollars), to receive tax exemptions/deductions/credits.

      You know how Cain painted himself into this corner? By dumping the FairTax.

  • http://www.redstate.com/thesophist TheSophist

    Because I’d like the primary to be about a competition of ideas more than a competition of personalities.

    Romney’s got the 59 point plan of tinkering at the edges.

    Cain has the 999.

    If Perry should open it up with the Flat Tax, we can have a robust debate about which is best and for what reason.

    I don’t know that it’s the path to victory for Perry, but I’d really like to see him do this.

    Good diary.

    • beach91

      I want the presidential arena to debate ideas! I do not want to debate who speaks the best and looks presidential anymore.

    • kcdude

      Great diary also

  • Change Jar Conservative

    Make it a flat tax with only personal deductions, making those personal deductions fairly large to cover typical mortgage and charitable deductions.

  • keonemichaels

    It will come down to Perry vs Romney in the final stages IMO.

    And Perry does not resonate with independents voters because of leftover distaste for Mr. Bush also from Texas and because independents won’t vote for a “radical” like Perry any way shape or form but would consider Romney.

    Smart money knows what I state is true. Team Obama is praying Perry will take it.

  • defenseconservative

    Rick Perry will really hurt Cain by endorsing the flat tax.

    That’s because the flat tax offers ALL of the benefits of the 9-9-9 plan, but does not have ANY of its unique drawbacks.

    It’s simple, fair, bold, and easy to enact, with an Act of Congress. It does not require a Constitutional Amendment.

    Unlike the 9-9-9 plan, it would not create any new federal taxes that would give politicians even more money to spend. It would not create a de facto VAT. It would not open the risk of a high personal income tax AND a high sales tax.

    • gracie

      Heard on two Houston radio stations Wed AM:

      The federal sales tax component of the 999 plan is a REPLACEMENT of Texas’ 8.25% state sales tax and…

      The federal sales tax component of the 999 plan is in ADDITION to the 8.25% Texas sales tax..

      To think that this misinformation was being broadcast to thousands of people! And imagine my friend’s consternation when she discovered that sales tax would now be 17.25%.

      Cain needs to be called on this and FAST before he becomes our alternate to Romney candidate.

      Always loved Steve Forbes and thrilled to know he is on the Perry team. Sec of Treasury? Flat tax is simple and imminently fair. Fair tax, while fair cannot be sold. 999 is a disaster that needs to be debunked ASAP.

    • n2sooners

      The flat tax is good, far better than what we have, but the fact still remains that it is a tax on production. On the other hand, a sales tax is a tax on consumption. Both have their benefits and draw backs. Cain’s plan has the benefits and draw backs of both.

      But the biggest benefit of either plan seems to be ignored by most people when putting down the Cain plan. Democrats do NOT want to raise taxes across the board. They aren’t nearly as concerned about raising more revenue as they are about shifting the burden. If they really cared about raising revenue and were willing to raise taxes across the board to do so, then they would have done so last December when all they had to do to raise tax rates was absolutely nothing. Instead, they actively voted to keep the Bush tax cuts rather than raise taxes across the board. And if they don’t have the balls to raise taxes by doing nothing, then how will they ever grow a pair big enough to actively raise taxes on everyone?

      Now, this isn’t to say I prefer one over the other, I am just debunking much of the BS about Cain’s plan.

      • Aaron Gardner

        Democrats have a long history of raising taxes. I don’t think a one time pass on raising taxes during an economic downturn is anything but the exception that proves the rule.

        Also, 999 is a tax on production and consumption, I would say it is disingenuous as best to act as if it isn’t and is therefore superior to a straight flat tax.

  • n2sooners

    What they do not want to do is raise taxes on those who might vote for them. With any kind of flat tax it is all or nothing. And it will be just as easy, or even easier for them to raise rates on a single flat tax than on both an income and sales tax. The best thing about a sales tax is you see it every time you buy something, and democrats prefer hidden taxes.

    And I’m not acting like the 9-9-9 plan is superior, just different. They both have their ups and downs. And we also can’t ignore that if we stick strictly to an income tax the rate will most likely be in the 20%+ range.

    I am simply tired of all the doom and gloom over the 9-9-9 plan while everyone pretends some other system is perfect. The fact is, any simplified flat rate system is better than what we have now and any tax system can be corrupted. If we decide to do nothing because doing something is just too hard or could be corrupted in the future, then we have already lost.

    • n2sooners

      hit the wrong reply button, meant this to be a reply to Aaron Gardner

  • windwaker24

    Cain’s 9-9-9 plan will hurt me. I make less than $35,000 and an extra tax on everything I buy will be a nightmare. I already pay a 9.25% sales tax to my state. So my sales tax rate will be increased to 18%. My federal tax rate is currently between 13%-15%. Reducing my federal rate by 4-6 points then adding a 9% sales tax on top of that is not going to help me.

  • onemovoter

    With what you mentioned.

    You are currently paying SS and Medicare taxes as well as federal income depending on all deductions.

    Under Cain’s plan both SS and Medicare taxes go away resulting in about 15% reduction. Then I think 35k is about 10% minus deductions which usually makes effective rate around 5-8% tax.

    So that means you go from about 20% to 9% total income tax. From there yes they do add 9% sales on New items so if you purchase about 75% new, that gives an effective rate of 7% so you would find yourself at 16% effective tax rate instead of 20%.

    Also since there is simplification and reduction on the corporation side, products you buy will end up cheaper.

    It’s a win for most people except for corporations like GE that didn’t pay any taxes and got back $3.2bil from the federal gov.

  • windwaker24

    I found my 2010 tax return. My tax rate is currently 9% not 13%, so my income tax rate will not change under his plan. Now I’m even more worried about the sales tax.

  • windwaker24

    Maybe I’m missing something, but if EVERYTHING has a 9% sales tax, how can the cost of doing business go down. Every piece of wood, every grain of corn, every piece of paper, every pen, etc. will cost employers more money. They will raise the rates just to keep their desired profit level.

    Example:

    If I made necklaces as a hobby and it currently costs me $1 for string and $2 for beads, my cost of doing business would be $3. To make a $2 profit, I would sell my product for $5. With the national sales tax, the string would cost $1.09 and the beads would cost $2.18. To keep my $2 profit, I would have to make the price $5.27.

    Now, take that on a grander scale. I just don’t see my employer giving me a raise if the chair I sit in, the pen I write with, and the paper I write on costs him more.

  • damianvincent

    the fairy tails and false math this 999 plan is selling is mind boggling. reduction on the corporate side, except every step of production, down to every part purchased in now taxed, including your purchase of the it. Expect that to be passed on. No more medicaid, no more SS, yeah that’s going to go places let me tell you, along with the extremely regressive sales tax, it’s effectively shifting the tax burden down, and opening up a new form of federal taxation, which coupled with state sales taxes in many states would make purchases close to 20% more expensive in many states. How on earth is any Conservative supporting opening up a new form of taxation on the people.

  • avagreen

    Has he spelled that out?
    How would it affect current retirees as everyone knows they are currently depending upon new monies coming in.
    How will affect future retirees?

    Has he addressed any of that with his 999 plan other than just eliminating both taxes?

  • Scope

    Employees have a total of 7.65% deducted from their gross wages, and it has nothing to do with any exemptions. The employer pays the other 7.65%. The total 15.3% paid to the government is half from the employee, and half from the employer. The employee only saves the 7.65% on the FICA taxes, not the full 15.3%.

  • noveldog9

    You have made many very valid and very significant points. Most people do not understand Cain’s 9-9-9 tax plan including many Congressmen. Perhaps Cain should better illustrate his plan so the masses can also understand how it works?

    The puppets currently protesting social injustice are actually working for the very people they are protesting against. Just follow the money trail. Obama and company have more multi billionaires supporting his re-election campaign than the GOP has. Do these folks think Warren Buffet and George Soros are not expecting to be amply repaid for financing his operations?

    These protesters are nothing more than puppets on a string, Slaves Without Chains ruled by other men’s brains. They will never see a cent of money from these super rich fat cats. They will only pay their organizers to set up the rallies.

    So what is their goal? To stir up the people and make them believe Obama and the Dumb-o-crats are the good guys and deserve their support. The Dumb-o-crats get re-elected and Buffet, Soros, and the others will get Union contracts, and special deals, and government contracts. They may even get to buy up many distressed companies real cheap. They will make billions from their relationship with the Democrat Party and Obama.

    While this occurs the people will lose more of their individual freedoms and will be even poorer than they ever were. You just can’t out fox the fox, can you?

  • Jim Tomasik

    999 is not a VAT.

    There is no tax on the steps of production. You do not pay tax on materials that are part of a product until it is taxed as part of the completed product. That tax is based on the final price of the product being sold to the end user.

    The tax does not accumulate along the steps of production.

  • windwaker24

    before they are made into a finished product. If I go to Home Depot and buy wood and screws, I will get a 9% sales tax on the wood and screws. They don’t know what I’m doing with the items. How do they differentiate between personal use and business use?

  • Jim Tomasik

    You would have a tax exempt certificate.

    This is already a tried and tested method here in TN. It works very well.

  • windwaker24

    I didn’t know about the tax exempt certificate. I’ve never ran a business. Cain still scares me though.

  • porkandcheese

    Regardless whether your business is tax exempt or not, Home Depot has no idea who will buy their product. They are already paying taxes, and they will pass that on to the consumer in their pricing.

    From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the “value added” to a product, material or service, from an accounting point of view, by this stage of its manufacture or distribution. The manufacturer remits to the government the difference between these two amounts, and retains the rest for themselves to offset the taxes they had previously paid on the inputs.

    That is why the second 9 of Cain’s plan is a VAT. A VAT is a consumption tax.

  • Jim Tomasik

    I would love to not have to pay H&R block a small fortune every year just to figure out how much money we owe.

    You’re welcome for the explanation. ;}

  • onemovoter

    And will be doing what he knows best which is retail politics.

    I just finished watching a video of him on Kudlow tonight and he came out really strong and knowledgeable. I think this will be the start of the comeback for Perry. It will be fun to watch.

  • Matthew Morris

    Perry did come across extremely well in this interview. I should watch more TV.

  • damianvincent

    Energy independence and 1.2 million new jobs, their is 300 years worth of energy under this country and it’s time we stop sending money overseas. That’s just phase one. Good interview I’ll definitely be paying attention tomorrow to get the details. So far sounds great.

  • avagreen

    So, obviously Cain’s idea is just pure junk science and poor economics. A certain population luvs it, but overlooks the other group that loses by it’s income because of the rescending the FICA tax and it’s funding of that group (the currently retired people that helped make this nation what it is, and the people soon to join them).

    NO DOUBT ABOUT IT. Perry’s flat tax is more fair, not as flashy maybe? But, infinitely more fair and exhibits Perry’s thoughtfulness of ………..everyone, not just a portion.

    He thinks of everyone. Cain threw this 999 business out off the top of his head, without thinking it through, with fans that jumped on it who did the same, it seems.

    Perry’s taken more time to come up with a truly workable idea. Let’s see if his “detractors” will let him have a chance to use it.

    PERRY 2012!!!!!!!!

  • Change Jar Conservative

    There is no lockbox just two programs.

    So the money would just come out of the new pool of three taxes instead of the old pool of six taxes.

    The key is to make the three taxes HAVE to be raised together and to make that issue unseverable very clearly in the legislation.

  • Change Jar Conservative

    I should add that I am still a Mitch Daniels supporter and am waiting for him to get in :-)

    Undecided on Cain, Perry, Gingrich, Romney.

  • tyman

    Scope,

    When an employee is hired, that other half is figured into their overall compensation package. So, in reality, the employee does pay for it all. The other half is just disguised as being paid by the employer. The employer sets the salary with this 7.65% in mind.

    I hope this makes sense.

    The employer’s half seems to me something that the government started to make people feel like they’re really getting something from the boss, when what it really does is limits a person’s take home pay for the sake of paying into the SS Ponzi scheme.

    As much as I like the Fair Tax, the 9-9-9 plan is a wicked stepbrother to it, and could likely leave a bad taste in the American people’s mouths about it. And I’m not sure that it would fund SS and Medicare the way the REAL Fair Tax would. I just don’t see the numbers working WITHOUT all of the advantages of the Fair Tax.

    Gov. Perry has said he likes the Fair Tax, and I do too! But, it would take WAY too much time to implement, and it’s easy to demagogue (“Candidate X wants to put a 23% tax on everything you buy!”). Perry needs to come up with something simple for now to get America working.

  • Vaughn Harold

    nt

  • Scope

    If the employer figured in the 7.65% they will be paying for their portion of FICA taxes, do they also figure in the electricity that eomplyee uses, the water they use, the coffee the employer may provide, the lunches that an employer may provide from time to time, the Christmas party expense. Man that a whole of of calculating the employer does before he decides on a pay rate isn’t it?

    Employers can deduct the taxes they pay, including the FICA taxes, when they file their tax returns. It is an allowable deduction from the employers bottom taxable line. Employees cannot deduct the FICA taxes they pay when determining their taxable income. Employers can deduct the portion of employee medical insurance they pay for the employee. Employees cannot deduct any of their payroll deductions they contribute to their group employer medical plan.

    I’ve never known the employer 7.65% of FICA taxes to be considered a benefit, as it is a write off for the employer.

  • tyman

    Scope, I’m on your side, and I don’t like 9-9-9.

    All I’m saying is that when an employer decides what they will pay to a prospective employee they take all of those into account (at least I did when I was involved in this) as part of the compensation package.

    Those expenses you mentioned are not part of the compensation package (salary, bonus, ESOP, insurance, taxes, etc.), but are costs of doing business. As with the taxes, salaries are business expenses that are deducted from gross profit.

    If the business didn’t have to pay these taxes, they would be able to put that extra money in the pocket of the employee. That’s what the government doesn’t want people to realize!

    As a tax professor I had once told me, “You don’t run a business to have write offs”. Businesses and employees would all be far better off to have this money in their pockets, instead of paying into SS (the businesses could offer more competitive compensation packages).

    As I said in the previous e-mail, I don’t think 9-9-9 properly addresses this loss of this revenue. Unlike the Fair Tax, I DO NOT believe this will be revenue neutral.

    That’s another BIG reason why I don’t like it.

  • tyman

    Folks have become so conditioned to only look at the net figure on their pay stub and they don’t even look at the withholdings.

    If every person got their full paycheck from their employer, and THEN had to subsequently write checks for all of the withholding taxes, I really think there would be a huge tax revolt.

    Until then, people just budget based on the bottom line figure.

    I seriously doubt very many employees look up the tax tables to make sure their withholdings are correct.

    That’s just the way the government likes it!

  • Scope

    When an employer decides on a compensation package for a prospective employee, the employer’s portion of the FICA taxes have nothing to do with the amount of compensation. The employer pays the IRS their portion of the FICA tax (including the employees deducted portion) and they use their portion as a write off as a business expense. The employers taxable bottom line is not affected either way by the FICA expense. It is a write off. Employers Fica=0 tax liability on their taxable bottom line. In other words, it is a moot argument to say that employers would see any benefit in the elimination of the FICA taxes under 999 for the employers. The only benefit to the elimination would be to the employee who would receive 7.65% more in their paychecks, which is still less than the 9% national sales tax they would incur with their purchases.

  • porkandcheese

    These programs will be funded entirely from the general fund then? That’s more radical than Perry calling it a Ponzi scheme. At least he had Nobel prize-winning economists backing him up. Cain has an accountant from Cleveland.

  • tyman

    I guess we have to agree to disagree (amicably, I hope) about FICA.
    I wish I could feel better about having to pay myself the other half of self employment taxes and writing it off. :-(

    No, I don’t think Cain’s plan takes this into account and the revenue will not be made up.

    I feel sure we agree about that!

    I don’t think we’ll have to worry about this any way once Perry is inaugurated!

  • http://nerds4cain.com Brookhaven

    A tax deduction is not the same as a tax credit.

    If the employer pays the government $100 FICA on behalf of the employee, they may claim a tax deduction of $100.

    If their tax rate is 35%, that means it will reduce their tax liability by $35. They are still out $65 of the $100 they paid to the government.

  • Scope

    Meet you in front of the Perry WH on inauguration day.

  • APA Guy

    Tru dat :)

  • Scope

    Rich Lowry????? Yes, you are correct, I’ve read that Lowry is nothing more than a financial planner. That makes a senior economic adviser? I wondered if Cain just didn’t have the money to hire any reputable, knowledgable, and conservative economists. I have seen Cain get credit from many just for his willingness to put something out there whether it was workable or not. I think Cain jumped the shark with this plan.

  • tyman

    I know this isn’t a cowboy movie, but remember those movies?

    Did the hero start talking and scare the bad guys? Nope.

    What did he do? He waited for the right moment and he let his actions do the talking for him.

    Could you see Mitt Romney as a cowboy? That’s about as scary as John F. Kerry asking, “Can I get me a huntin’ license here?”.

    People want someone to blow Obama off the debate stage, and I think it’s clouding the big picture.

  • Scope

    with the American Flag on them like President Perry’s.

  • Scope

    n/t

  • porkandcheese

    Cain’s guy is Lowrie, but only pointing this out to avoid confusion for others. Art Laffer has come out supporting 999, but only because he wants tax reform. I think it is irresponsible to expect the government to live within its means once you give it a new source of revenue. That’s why I’m glad Levin has come out and said ONLY if the 16th Amendment is repealed. For those who claim this is an unreasonable expectation, contrast that to what I just said about federal spending.