Rick Perry has outlined today what some entities are referring to as a “flat tax”, but nothing could be further from the truth. In reality, Perry’s plan is intended to gain the attention and fervor of Herman Cain’s 9-9-9 plan while at the same time appeasing multiple groups.

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.

In other words, if you are part of the 47 percent of Americans who pay no federal income taxes today, you still won’t pay any income taxes. Everyone whose effective tax rate is higher than 20 percent would take this option, which includes most of the top 20 percent of income earners and very few others. Additionally, every high income earner using the mortgage interest tax credit on a multi-million dollar jumbo loan will continue to benefit and drive the effective 20 percent no-so-flat tax rate down.

In other words, this plan would actually be a disaster for revenues and this is where Perry’s plan only begins to stumble.

Temporarily lower the rate to repatriate funds to 5.25%.

It is important to bring our capital back for investment in our country, but a temporary fix is a waste. It will only create a bubble, a nice surge that will help the economy enough so the the incumbent President is more likely to gain reelection. You either believe in allowing funds to be repatriated or you do not. Otherwise, you are no different than President Bush in sending out reelection payoffs “stimulus” checks to the masses.

Reduce the corporate tax rate to 20%.

This is this most sensible measure in Perry’s plan. It would put business on an even playing field, assuming he does not have hidden deductions making the tax not really flat, as he does in the optional personal “flat” income tax. A lower tax rate for business would free up capital for investment and growth. A flat tax would provide certainty for the future, also encouraging growth.

Eliminate the tax on Social Security benefits, boosting the incomes of 17 million current beneficiaries who see their benefits taxed if they continue to work and earn income in addition to Social Security earnings.

The real problem is we are paying people to not work through Social Security who are perfectly capable of working. Some of these people actually want to work. Perry’s proposal does not solve the actual problem. A real solution would encourage people to work without drawing Social Security, such as providing the option for people eligible to draw Social Security to continue working 100 percent federal tax free (income, payroll, etc.) until the day they choose to take Social Security. This solution would allow people the dignity of working when it is still possible for them to work, potentially making more income, while simultaneously preserving the Social Security program for those who actually are in need of it. Perry’s plan is simply designed to win votes, not fix anything.

A clear goal of balancing the budget by 2020.

In the real world, no plans, especially those made by the federal government, will remain intact nine years from now, let alone next year. Congress has not even passed a budget for several years (we have been operating under a series of continuing resolutions). Over the time frame from now until 2020, the entire House of Representatives will have been up for reelection five times (including 2020), and the entire Senate one and one third times. The only realistic way the budget becomes balanced is in the President’s first term.

Passing a Balanced Budget Amendment to the Constitution

There is a whole lot more to this than saying “hey, we’re going to pass a balanced budget amendment!” Amending the Constitution is  significant process. Although I agree with this sentiment, Perry is throwing it in here as political rhetoric.

Freezes federal civilian hiring and salaries until the budget is balanced.

This is common sense. It is exactly what business does when it is facing economic difficulties.

Overall, Perry is trying to gain the notoriety earned by Herman Cain by proposing a so-called flat tax. But in reality, with it being “optional”, it is all talk and with the exemptions it allows, it is not a flat tax. This plan is intended only the lower the taxes of the top 20 percent of income earners without requiring any contribution from the bottom 47 percent of income earners who pay nothing today. I’m all for lowering the tax rates of those who are forced to pay all the taxes in this country, but only when the tax burden is fairly distributed. A true flat tax would tax every income earner at exactly the same rate, with no loopholes or exceptions whatsoever. Then people would choose how to spend their money in whatever way was most economically beneficial to them, rather that the way the tax code dictates.

Being advised by the great mind of Steve Forbes, I expected so much more from Rick Perry. This however, is a unmitigated disaster.

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