Texas governor Rick Perry has united a divided country with his not-so-flat tax plan: no one really gets it. The left and right corners of the blogosphere began picking it over last night when he outlined its design in an op-ed in the Wall Street Journal. In essence, the plan gives people a choice: pay a 20% flat tax or keep your 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," he wrote. It also gets rid of the tax on Social Security benefits, qualified dividends, the estate tax and long-term capital gains taxes. What's so difficult to understand about that? Well, quite a lot.
Is this actually more simple? The appeal of a flat tax is to overhaul and simplify the tax plan. But this plan doesn't seem to simplify anything, as taxpayers are allowed to op-out of the plan. Michael Brendan Dougherty at Business Insider notes the confusion. "Perry's tax plan would preserve all the confusion, waste, and market distortions in the current code, and add another layer. The politicians who manage that would get a new tax code to fiddle with as a bonus — one that has little substance beyond massively cutting taxes for the wealthy."
Is it revenue neutral? Whether or not it brings in more or less money from Americans is one of the key aspects of any tax plan, be it progressive, regressive or flat. But Perry's plan fails to mention that. The conservative American Enterprise Institute's James Pethokoukis, who is optimistic about the plan, notes he will "look forward to getting more details." His gut instinct? "If it is not revenue neutral on a static basis (and I am guessing it is not), the media will kill it."
How will the poor be treated? The Washington Post's Nia-Malika Henderson is particularly confused about this one. "Will the poor pay more? Perry’s plan, which keeps the national flat tax at 20 percent, comes with an opt-out provision, which means if you like your current tax rate, you can keep it. And deductions for mortgages and charitable contributions, etc, remain, possibly blunting the usual criticism that flat tax plans get."
How would he cut spending? Conservative reporter Philip Klein at The Washington Examiner notes that Perry's plan isn't quite flat but is more confused about how it will rein in spending.
Perry promises to balance the budget by 2020, cap spending at 18 percent of gross domestic product and pass a Balanced Budget Amendment. The problem is that it’s hard to see how his plan would control entitlement spending, at least based on the op-ed. Perry would allow younger workers to opt out of the current Social Security system and invest in personal accounts, which would be good. However, Perry doesn’t mention any proposals to rein in the costs of Medicare, the primary driver of our nation’s long-term debt crisis. Nor does he mention in his op-ed what he would do about the employer tax exclusion for health care, which is one of the main factors driving up underlying health care costs, which in turn add to the strain on our budget.
Is it really a small government solution? The Atlantic's in-house libertarian Conor Friedersdorf homes in on Perry's plan to preserve the mortgage interest deduction. "I just want to point out one grating component. After months of the conservative rank-and-file insisting that the financial crisis was caused mostly by the government, and its anti-free market subsidies that brought about a housing bubble, it's noteworthy and disappointing that a red meat candidate doing his utmost to please the base includes in his 'flat tax' the preservation of the mortgage interest deduction."