October 25 2011

What’s the Take-Away From Perry’s Flat Tax Plan?

Sabrina Schaeffer

I’ve been writing today – in Politico and The Hill (for tomorrow) – about the unveiling of Perry’s flat tax plan, so I think it’s worth drawing attention to some great – and reassuring – analysis by Dan Mitchell, senior fellow in tax policy over at the Cato Institute.

According to Mitchell, “the grade for Perry’s flat tax could be as high as A- or as low as a B. Regardless, it will be a radical improvement compared to the current tax system, which gets a D- (and that’s a very kind grade).”

What’s especially helpful about Mitchell’s breakdown is that he grades Perry’s plan by asking some very simple questions, such as:

“Does the plan have a low, flat rate to minimize penalties on productive behavior?”

“Does the plan eliminate double taxation so there is no longer a tax bias against saving and investment?”

“Does the plan get rid of deductions, preferences, exemptions, loopholes, credits, shelters, and other provisions that distort economic behavior?”

Ultimately, Mitchell explains:

As a long-time advocate of a pure flat tax, I’m not happy that Perry has deviated from the ideal approach. But the perfect should not be the enemy of the very good. If implemented, his plan would dramatically boost economic performance and improve competitiveness.

The fact is many conservative and Republican voters were initially attracted to Herman Cain’s 9-9-9 plan because they liked the idea of bringing simplicity, transparency, and fairness to our tax system. Still, many of those voters were also concerned that Cain’s proposal – and the additional sales tax – could develop into a potentially disastrous economic policy.

For those voters who have been seeking out an alternative, it appears Perry’s plan may offer a more realistic – and in Mitchell’s words a “very good” – proposal that could dramatically improve the tax system and boost economic growth.

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