Rick Perry's flat tax plan: Would you have to do your taxes twice?
People could opt for flat tax rate of 20 percent or stick with the current tax system. The Rick Perry plan offers choice, but people might need to do two calculations to tell which is best, some say.
(Page 2 of 3)
Even some who are not opposed to flat taxes have doubts about the Perry plan. “The reason to do a flat tax is to get rid of the sham deductions out there,” says economist Joel Naroff of Naroff Economic Advisors in Holland, Pa. “If you keep a lot of them in there, you are missing the whole point of the flat tax.”Skip to next paragraph
Subscribe Today to the Monitor
Mr. Naroff says that once one deduction is allowed – for example, the deduction for mortgage interest – it is easier for other groups to lobby for their own deductions. “You open the door to recreate the current structure,” he says.
The way Naroff sees it, Perry is trying to prevent any group from being worse off because of his proposed tax changes. “That’s a little hokey,” he says.
Perry’s plan comes amid public distrust of politicians and their promises about taxes. According to a Clarus poll released Tuesday, 55 percent of 1,000 registered voters say Obama’s tax plan will raise their taxes and 41 percent say Cain’s 9-9-9 plan will, as well.
“Many voters don’t believe what politicians from either party tell them about raising, reforming, or cutting taxes,” says Ron Faucheux, president of Clarus. “This surprising data explains why the president is having such a hard time selling his jobs package.”
The Perry plan might result in a massive tax cut for the wealthy and higher taxes for those who currently use tax credits such as the child tax credit or the Earned Income Tax Credit, says Mr. Bartlett. For example, under the Earned Income Tax Credit, low-income Americans who do not pay any federal income taxes still receive money back when they file their taxes. “When you go from a negative income tax to zero, that’s a big tax increase,” says Bartlett.
However, it’s not a given that the rich would get a big tax cut under the Perry plan, says Naroff. For example, billionaire Warren Buffet has said that his effective tax rate is 17.4 percent. Under the Perry flat tax, he and other billionaires might actually pay more taxes, says Naroff.
It appears that Perry would retain the payroll tax, though he did not mention it Tuesday, says Bartlett. The payroll tax currently funds Social Security and Medicare, two entitlement programs for seniors. Under the Cain plan, the payroll tax is eliminated.
“The problem with eliminating the payroll tax is that under Social Security it gives an earnings history for benefits,” says Bartlett. “If you eliminate payroll taxes, there is no data to calculate the benefits paid out unless you move to privatize the system.”