GREENVILLE, S.C. — As many fiscal conservatives turn cartwheels over the flat tax proposal Gov. Rick Perry is set to unveil here in the Palmetto State today, the Texas presidential contender is relishing finally being in the headlines for something other than his debate gaffes or unfortunately named family hunting camp.
Republican strategists say his plan is a shrewd political move, one that could draw tax reform enthusiasts away from Herman Cain’s 9-9-9 plan, and provide a clear and easy-to-understand alternative to Mitt Romney’s 59-point economic plan.
“Team Perry is drawing that bright line distinction not only between himself and Romney, but between himself and Cain,” said Ford O’Connell, a Republican strategist and former campaign adviser to the McCain-Palin ticket. “This is about winning over the anti-Romney voting block, and getting them to come together around one candidate.”
Economists are divided on the equity and effectiveness of the flat tax, which, in its purest form, would replace the current progressive income tax rate with an across-the-board rate.
“Flat tax proposals tend to be popular on a first blush basis but fall apart once people realize what the effects are,” said Chuck Marr, director of federal tax policy for the left-leaning Center on Budget and Policy Priorities. “There’s a superficial appeal, but when it comes out that middle-class people tend to lose big, it loses its popularity.”
But Perry’s proposal, leaked to The Wall Street Journal on Monday, would be optional: It would set a 20 percent flat tax with a standard deduction of $12,500 for each person in the household — but allow tax filers to choose between that tax and the current tax code.
Perry has designed his plan with the help of publishing magnate Steve Forbes, whose own 17 percent flat tax plan was the linchpin of his unsuccessful 1996 and 2000 runs for the Republican presidential nomination. In an endorsement of Perry on Fox News on Monday, Forbes said GOP voters can expect “a very low rate” and “generous exemptions for adults and children” in Perry’s plan. By comparison, Cain’s 9-9-9 plan calls for a 9 percent national sales tax, a 9 percent corporate tax rate and a 9 percent income tax.
“People want it, they hunger for it,” Forbes said of the flat tax. “You saw the reaction to Herman Cain’s plan, even with that sales tax part of it. Rick Perry does not have a sales tax, which I think is going to make the plan even more appealing.”
Economists’ perspectives vary widely. Conservative tax groups say the flat tax eliminates the “double taxing” that happens when Americans pay capital gains taxes and estate taxes. And they argue in the long run, it will spur economic growth — and job creation — by reducing taxes on saving and investment. But opponents say that in order to generate the same revenue the current progressive tax makes, the middle class would largely have to make up the difference, which is why it hasn’t historically been politically viable in the U.S.
Regardless of the plan’s long-term political feasibility, O’Connell said it works for Perry right now. It’s simple like Cain’s 9-9-9 but allows for greater depth and detail, which he said “has started to hinder Cain’s bid.” And it’s far easier to grasp than Romney’s 59-point economic plan, which, “no matter how well thought out, doesn’t inspire emotion and energy.”
But former House Majority Leader Dick Armey, a high-profile supporter of the flat tax, said Perry still must convince Republican voters — and in particular tax-reformer, Tea Party loyalists — that he’s sincere, and not just using the flat tax for political gain.
Armey, the chairman of the libertarian advocacy group FreedomWorks who campaigned for U.S. Sen. Kay Bailey Hutchison in her losing 2010 gubernatorial bid against Perry, said he doesn’t think Perry is a Johnny-come-lately to the flat tax. And he said Forbes’ role in Perry’s campaign is a good sign that it’s the real deal. But he said that voters are skeptics — and that he’s not ready to throw his support behind Perry.
“I’m optimistic for what he can do to improve his electability with a flat tax,” Armey said. “I just want to make sure he means it, beyond this campaign.”