If Americans elect Governor Rick Perry (R-TX) as the next President of the United States he plans to cut taxes for nearly every American, but those tax cuts will come at a hefty price. Today Perry is releasing his economic plan, which he has been hyping for weeks now in the GOP presidential debates. The plan, as detailed by the Associated Press, would dramatically lower taxes on the rich and corporations, while simultaneously making big cuts in Medicare and Social Security.
The heart of the Perry plan is a 20 percent “flat tax” paid by every American. The 20 percent rate would be much lower than the current rate for the richest Americans, who currently pay 36 percent. In order to avoid a tax hike on the poor and middle class, Perry would give Americans an option to keep their old tax rate. What this practically means is that Perry would lower taxes or keep taxes the same for every American. The richest may see their tax rate go down by over one-third, while most middle class Americans would see their rate stay the same.
Perry’s plan would also lower taxes on corporations from the current rate of 25 percent to a new rate of 20 percent. Many tax loopholes for corporations would be done away with, but Perry’s plan would also create a new loophole. Under the Perry plan, corporations would be allowed to repatriate their profits if taxes were already paid in another country. Many corporations have effectively avoided the corporate tax rate in America by paying a lower rate in other countries even though most of the corporations business is done in America. Perry’s plan would allow these corporations to bring their money back now with a much smaller penalty (a 5.25 percent tax) than the current system.
The result of Perry’s plan would likely be a dramatic reduction in federal revenues. If federal spending was not cut this would mean much higher deficits. To his credit, Perry does propose some cuts to help pay for the new tax cuts.
Perry would first take on Social Security. After earlier declaring the program a “Ponzi scheme” Perry now proposes to extend the entitlement program with some new changes. Current beneficiaries would still receive their checks, but younger workers would now be eligible for the program at later age, effectively delaying retirement many years for millions of Americans. In addition, young workers would be allowed to put their Social Security earnings into the private market, much like a 401(k). The proposal is similar to the Social Security privatization program that President Bush proposed during his presidency. The Bush plan was rejected by Congress over concerns about putting the “guarantee” of Social Security at risk in the historically volatile private stock market.
In addition, Perry would allow the states to opt out of the Social Security program and try different programs instead. This proposal would most dramatically affect the disabled, many of whom rely on Social Security for assistance.
The largest cuts from the Perry plan would likely be directed at Medicare. Perry would raise the Medicare eligibility age, which would require Americans to either purchase their own health insurance at much higher rates in their senior years, or risk going without health insurance for some time. Perry would also borrow from principles of the Rep. Paul Ryan (R-WI) by allowing Americans to take a voucher in order to purchase insurance in the private market rather than accepting the guaranteed benefits of the current Medicare plan. The Ryan plan was criticized by Democrats over allegations that it would shift the health care costs burden from the federal government onto the backs of the elderly, who may have to pay higher premiums in the private market. Finally, Perry would reduce Medicare benefits for those with higher income, a proposal which some call “means testing.”
The Perry team has yet to release the official numbers behind their plan. Even after the Perry campaign releases their numbers critics will surely contend that the Perry’s team math is bogus. Even with the cuts to Medicare, Social Security, and discretionary spending it will be hard for Perry to avoid increasing the federal deficit with the massive reduction in revenue caused by his tax cuts. Like President Bush, Perry may be relying on economic growth to raise the overall tax base and, therefore, keep revenue neutral. The problem is that Bush’s promised economic boom never came about, and as a result deficits greatly increased after the Bush tax cuts were passed in 2001 and 2003.