While many want to pound Herman Cain’s 9-9-9 plan into the ground for its addition of a 9 percent sales tax. Very few have mentioned the newest proposal out there. Let alone really evaluated it. But Rick Perry has placed himself in the camp of the flat taxers to oppose the fair tax move of Herman Cain. But what does Perry really offer?
Institute Individual Flat Income Tax Rate of 20%
By implementing a simple and optional flat tax that will allow Americans to file their taxes on a postcard, up to $483 billion a year could be saved by American families and businesses in reduced compliance costs alone.13 A simpler, flatter tax code – free from the dozens of individual carve-outs that make the code so incomprehensible – will remove the disincentives to work, entrepreneurial risk-taking, and investment that form the foundation of a strong and vibrant economy.
Lower- and middle-income families will be able to take advantage of an optional 20% flat tax rate that includes generous standard exemptions of $12,500 for individuals and their dependents, as well as deductions for mortgage interest, charitable contributions, and state and local taxes.
So Rick wants to offer the option of paying the flat tax. If you currently pay less than the stated 20% flat are you going to opt in? For that matter Perry’s big push is the savings in expenses to the American tax payer in services to figure out the taxes. Well ask Governor Perry where will people go to figure out which one will benefit them! This proposal will only blur the lines on our already complex tax system as it only adds another layer to investigate.
Now on to the next point. The premise of a flat tax is that it is flat and that is that. No deductions no loopholes, just a flat rate for everyone. But Rick Perry wants to keep a few deductions.
Preserve Deductions for Mortgage Interest, Charity, and State/Local Taxes
Although the proposed flat tax system will not include most special tax credits or deductions embedded within the existing system, families and business that made investment decisions years ago based on the existence of those deductions or credits will still have the option to take advantage of those deductions and credits by remaining within the existing tax system. However, the new optional flat tax system will also include deductions for mortgage interest, charitable contributions, and state and local taxes.
Eliminating the deduction for mortgage interest payments could potentially drive housing prices down even further, while eliminating the deduction for charitable contributions could potentially reduce private funding for non-profits that provide vital services to the less fortunate in the midst of a severe economic downturn.
So what exactly would this 20% flat tax fix? Nothing. The argument that eliminating the mortgage deduction would slow the housing market is an interesting one. Since the housing market is dropping steadily at the current tax rate and most of us end up paying (well the 53% who actually PAY income tax) about 15 to 20 percent anyway. If a true flat tax on every American was proposed the market would probably skyrocket from the additional take home everyone would have. A flat tax of say 9 percent (who proposed that?) would bring additional money to the people who could afford to buy homes. Let’s not forget that it is the artificial propping up of a market by government intervention and loans to people who could not afford them prompted by easy bailouts by Freddie and Fannie. That caused this mess.
I have touched on just two areas of this proposal, only because it is easy to shoot holes in this plan just discussing these two areas. News flash for Rick Perry, a flat tax is flat (NO DEDUCTIONS) and if you want to simplify the tax code do it. Do not leave the old system in place and add another layer.
It is not working for me folks.