Which GOP flat tax plan is fairest of them all?
So far, Herman Cain, Rick Perry, and Newt Gingrich have all introduced flat tax plans, which would lead to less revenue and broader spending cuts, analysts say.
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If the same four-member household were middle-income, earning $69,800, they would come out $1,140 ahead under the Perry plan. If they made $136,000 a year, they would benefit by $11,980. A very wealthy couple making $424,900 would have an extra $46,400 in their bank account.Skip to next paragraph
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Although Perry maintains his plan would not widen the US budget deficit, independent experts suggest that it would. Tax revenue would fall for the federal government as tax rates dropped. However, Perry maintains government revenues would increase as the economy grew faster. “That’s highly unrealistic,” says Mr. Williams. “He is still going to have to cut spending a lot.”
The Gingrich plan
Mr. Gingrich’s plan has a lower tax rate than Perry's, but it does not give taxpayers credit for paying state and local taxes, as does Perry. “The Gingrich plan might be worse for people in high-income-tax states like California and New York,” says Mr. Graetz, “since they would lose the deduction for state income taxes.”
Under Gingrich, middle-income, high-income, and very-high-income individuals would benefit from the flat 15 percent tax rate.
“People who make $1 million and above [would] have an effective tax rate of 24 percent,” says David Cay Johnston, who teaches at Syracuse University and who wrote two best-selling books on the tax code. “He would be cutting their taxes by 37.5 percent,” says Mr. Johnston, also a blogger for Thomson Reuters.
Under the Gingrich plan, the budget deficit would grow, estimates Williams at the Tax Policy Center. “You would have about three-quarters of the revenue you would have under Perry, so you have a much bigger revenue hole,” he says.
The Cain calculus
To calculate taxes under the Cain plan, the Tax Policy Center added up all three taxes totaling the equivalent of a 25.38 percent national sales tax.
Using that calculation, taxes for the wealthy would drop considerably under Cain’s proposal. The Tax Policy Center projects in 2013, the first year the Cain plan could be enacted, 95 percent of people making $1 million or more would get a tax cut that averaged $487,300.
By way of comparison, only 16 percent of people making between $50,000 and $75,000 a year would get a tax cut, averaging $1,959. At least 70 percent of people in this middle-income category would see their average federal taxes rise by $4,326.
Until Cain decided to give poor Americans protection from his tax plan, the Tax Policy Center had decided his plan would not affect the federal budget deficit. However, with that change, the Cain plan will mean loss of revenue and the government would have to cut spending to make up for it, Williams says.