Texas Gov. Rick Perry, trying to revive his flagging GOP presidential campaign, has unveiled a proposal for a 20 percent flat tax that he says would help boost the economy and create jobs. (Americans would also have the option of sticking with their current tax rates, if they prefer.) Many independent economists say it would likely only be wealthier Americans who opted out of the current system — and getting a major tax break as a result. Ted Gayer, co-director of the Economic Studies program and a Brookings Institution senior fellow, says Perry's proposal would leave the government with a "substantial" drop in revenues, driving up deficits. Would Perry's proposal indeed lead America toward economic ruin?
Perry's plan would be a budget disaster: Perry should be applauded for trying to simplify the messy tax system, says Peter Schiff at the Financial Post. But his claim that a flat tax would lead to balanced budgets is "pure fantasy." He wants to let anyone already paying less than 20 percent stay in their low tax brackets, while handing the wealthy "a huge tax cut." All that will do is "blow another enormous hole in an already dangerously unbalanced budget."
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Keeping the current system is what would ruin us: We're not raising enough revenue with the current tax code, says The Wall Street Journal in an editorial, but tax reform can turn things around. The Reagan reform of 1986 reduced tax rates from 50 percent to 28 percent, and it helped the economy. So it's reasonable to expect Perry's plan to spur "faster growth and more job creation." And for insurance, he plans to slash spending from 24 percent of GDP to 18 percent.
It's more complicated than either side admits: Perry's own consultants estimate his plan will reduce the nation's tax haul, says James Pethokoukis at The American. The reduction would be $4.7 trillion from 2014 to 2020 if all else remains equal, and by $1.7 trillion assuming Perry's tax code actually does boost economic growth. So cutting spending isn't a secondary consideration — it's what will determine whether Perry's plan results in budget surpluses or bigger deficits.