TOPICS > Politics

With 20% Flat-Tax Plan, Perry Eyes Distinction From GOP Field

October 25, 2011 at 12:00 AM EDT
GOP hopeful and Texas Gov. Rick Perry unveiled his flat-tax proposal Tuesday at a South Carolina plastics plant. Judy Woodruff discusses his and other candidates' ideas for reforming the U.S. tax code with Stephen Moore of the conservative Club for Growth and Robert Kuttner, co-editor of The American Prospect magazine.

JUDY WOODRUFF: What to do about taxes was topic A in the presidential campaign today. Republican Rick Perry rolled out his plan for an across-the-board tax rate of 20 percent.

As heavy machinery hummed in the background, the Texas governor unveiled his flat tax proposal at a South Carolina plastics plant.

GOV. RICK PERRY, R-Texas presidential candidate: The best representation of my plan is this postcard. This is the size of what we’re talking about right here. Taxpayers will be able to fill this out and file their taxes on that.


JUDY WOODRUFF: The Perry plan breaks down this way. The 20 percent flat tax would be optional. Americans at any income level could choose between that or their current tax rate. The first $12,500 of income per individual would be exempt.

And the plan, which had no price tag attached, would maintain deductions for mortgage interest and charitable contributions for households making less than $500,000 a year.

GOV. RICK PERRY: Taxes will be cut across all income groups in America, and the net benefit will be more money in Americans’ pockets, with greater investment in the private economy, instead of the federal government.

JUDY WOODRUFF: Perry also touted a broader economic overhaul, including lower corporate tax rates, a balanced budget constitutional amendment, and Social Security reforms that include private accounts for younger workers.

The Perry plan has the blessing of a key adviser: Steve Forbes, a two-time contender for the Republican presidential nomination in 1996 and 2000. He ran almost entirely on the idea of a flat tax.

STEVE FORBES, Republican presidential candidate: Just remember, with the flat tax, with you as individuals and with you as families, the flat tax is a tax cut. You will gain more than you lose.

JUDY WOODRUFF: This time around, tax reform in its many variations is a top priority for the Republican field.

HERMAN CAIN, (R) presidential candidate: If 10 percent is good enough for God, 9 percent ought to be good enough for the federal government.


REP. MICHELE BACHMANN, R-Minn. presidential candidate: My first priority would be to put in place a fair tax in this country.

JON HUNTSMAN, (R) presidential candidate: Get rid of all tax expenditures, all loopholes, all deductions, all subsidies, all corporate welfare.

NEWT GINGRICH, (R) presidential candidate: We want successful families focused on job creation and growth, not meeting with CPAs and tax lawyers to avoid taxes. And the death tax is inherently, morally, a bad tax.

JUDY WOODRUFF: Another top contender, Mitt Romney, has stopped short of proposing a flat tax, calling instead for other changes to the tax code.

But Perry today criticized the plans of his rivals, as well as that of President Obama, who has proposed a surtax on millionaires, among other changes to the code.

GOV. RICK PERRY: America is under a crushing burden of debt, and the president simply offers larger deficits and the politics of class warfare. Others simply offer these microwaved plans with warmed-over reforms based on current ingredients.

JUDY WOODRUFF: The president’s re-election campaign, in turn, targeted both Romney and Perry, saying they — quote — “would shift a greater share of taxes away from large corporations and the wealthiest onto the backs of the middle class.”

Perry said today he anticipates such attacks, but he insisted his ideas show he is the change agent voters want.

We get two different views on the flat tax now from Stephen Moore, a member of The Wall Street Journal’s editorial board and co-founder of the conservative Club for Growth, and Robert Kuttner, co-founder and co-editor of The American Prospect magazine. He’s also a senior fellow at Demos, a liberal think tank.

Gentlemen, thank you both for being with us.

And, Stephen Moore, I’m going to start with you.

You have long been a proponent of flatter taxes. Do you agree with Gov. Perry that what he is proposing today is going to lead to stronger economic growth?

STEPHEN MOORE, The Wall Street Journal: Oh, I don’t think there’s any question, Judy.

I think that the tax system right now is a complete albatross around the neck of the U.S. economy. We have on the corporate side the second-highest tax rates in the world among our trading partners. And I think that most business men and women and corporate CEOs will tell you that puts the U.S. at a competitive disadvantage.

On the individual side, the system is just a complicated mess. The average American is spending 15 hours a year just figuring out what their taxes are. The simplification of the flat tax, the driving down the rates and one other thing, Judy that’s very important — the flat tax eliminates all of the double taxes on saving and investment. And so hopefully that means we would get more saving and investment and those are the seed corns of a growing economy.

JUDY WOODRUFF: So, Robert Kuttner, the argument you’re hearing from Mr. Moore and Gov. Perry is that this is going to unleash jobs, creation of jobs and economic growth.

ROBERT KUTTNER, American Prospect: Well, there are several things wrong with Perry’s proposal.

First of all, he didn’t put any numbers on it. So anybody, whether in business or running for public office who’s remotely serious about changing something as fundamental as the tax system, is going to tell you what it costs.

Secondly, his plan says if you do better under the present tax system, you can pay your taxes under the present system. If you do better with a 20 percent flat tax, you can take the 20 percent flat tax. Obviously, that means that people are going to take whichever one does better for them, which means there’s going to be a huge revenue loss, which is going to make the deficit worse.

And, also, the people who are going to opt for the flat tax are people who are currently paying more than 20 percent. They’re the more affluent people. So this is a tax break for affluent people. And, look, we had three big tax cuts under President Bush. If tax cuts were the key to prosperity, we’d all be in clover, but we’re in this deep recession.

JUDY WOODRUFF: And again on the point of whether it creates economic growth, how do you see that?

ROBERT KUTTNER: Well, again, we have had a legacy of one tax cut after another, and we are in the worst crisis of unemployment and low investment since the Great Depression. There’s more to life than low taxes.

And, finally, if you think about the issue of tax simplification, the complicated part of paying your taxes is not multiplying the rate times your taxable income. The complicated part is going through all your receipts and figuring out what your taxable income is. This doesn’t do anything to simplify that.

JUDY WOODRUFF: Let’s go to the point, Stephen Moore, that he made a moment ago, that this would result in a revenue loss because people could pick and choose which system they wanted to go under and make the deficit worse.

STEPHEN MOORE: I kind of like this idea of making the flat tax optional, because what it basically says to Americans, look, if you want to keep your mortgage deduction or your charitable deduction or some other sacred cow, you can stay in the old system.

But for people who want a modernized system that’s very simple, we’re talking, Judy, about a postcard tax return that you could fill out literally in 15 minutes. That’s a big deal for people.

And I disagree when Robert says, oh, everybody just is going to take whatever form gives them the lowest tax liability. I think that the vast majority of Americans just will say, give me a system that is fair and simple.

And I think the point that Robert misses and a lot of liberal critics of this miss is this plan is ultimately a kind of Washington-vs.-America issue. Everybody in Washington hates the flat tax. When you — think about it. Lobbyists hate the flax tax. Tax accountants hate the flat tax. Politicians hate the flat tax, because the power center in Washington is the tax code.

If you have a simple system that can’t be gamed, you don’t have corporate welfare in the tax code, then you basically allow Americans to have something simple, pro-growth.

And, look, Robert, you’re right, we had tax cuts under Bush, but it’s also true we had big supply-side tax rate reductions in the 1980s. We not only got a huge increase in economic growth. We actually doubled the tax revenue. So I think we can do this in a way that increases revenue, increases jobs, and is not regressive.

JUDY WOODRUFF: Several points to react to, Robert Kuttner. What about the point he made about fairness, that this is basically is a more fair system for taxpayers?

ROBERT KUTTNER: Well, Washington vs. the rest of America, fair system, those are slogans. He didn’t respond to any of the points that I made.

It is going to increase the deficit. More affluent people are going to get a bigger tax break. The governor didn’t even do us the courtesy of telling us what it costs. So you can’t make policy based on slogans. I think the fact that this doesn’t have any numbers in it means that it was thrown together as a campaign device, and it’s the mark of its fundamental lack of seriousness.

The tax revenues went up in the ’80s and ’90s because people were getting whacked with Social Security increases, and now you’re going to put Social Security at risk because revenue is going to be socked again. So I think it’s a very half-baked plan.

JUDY WOODRUFF: Come back to you, Stephen Moore. It’s not just Rick Perry. It’s Herman Cain with the famous 9-9-9 plan. It’s Newt Gingrich, Gov. Jon Huntsman who are talking about a flat tax.

STEPHEN MOORE: Yes. Right. Right.

JUDY WOODRUFF: As you look at those proposals, is there one that’s better than the others in your mind, and this — how many Americans are paying taxes today? What percentage of Americans pay taxes?

STEPHEN MOORE: Great point.

Well, first of all, I think Newt Gingrich said something very wise in the last Republican debate, when he said, look, at least Republicans, they have all these different plans out there, the 9-9-9 plan, now this flat tax and other plans. They’re having a very substantive debate about what to do about this tax code, which is simply indefensible.

Everybody agrees we have to get rid of it and start over, at least among Republican voters. So I think it’s a very healthy debate. And it’s liberals I think who are sounding reactionary. Oh, no. They want to defend the status quo, not to move to something that is pro-growth.

And, Robert, here’s like I think the key point that I would make about this plan. You say it’s regressive, that the poor will get hit hard and the middle class. There’s nothing that is more regressive than our current tax code. We have a tax system right now that — in part because of the taxes — and we have 14 million unemployed people.

It’s not working. So I say the most regressive plan out there is the current tax system.

JUDY WOODRUFF: You want to respond to that, Bob Kuttner?

ROBERT KUTTNER: I certainly do, 14 million people are not working, and the numbers are actually higher than that — not because of the tax code. We have been cutting taxes — 14 million people are not working because we let Wall Street go berserk by deregulating all of the protections that prevented Wall Street from gambling with the house’s money.

And I just want to repeat the point. If you have any deductions at all, which most Americans do, you can’t fill out your tax form on a postcard, because you have got to calculate what your reductions are. So it sounds like a serious debate because you have got different proposals — 9-9-9 is even worse because most people would face a tax increase.

And this is a way of making the budget deficit worse, so you can then say, whoops, the deficit is bigger than we thought it was. Now we have to cut Social Security, we have to cut other programs. It’s fundamentally unserious. It’s mainly a set of slogans.

JUDY WOODRUFF: So, Bob Kuttner, you’re essentially dismissing all the different Republican flat taxes — or flatter tax proposals.

ROBERT KUTTNER: I’m being critical of the flat tax. It’s not going to make things simpler. It’s simply going to make things less fair. It’s certainly not going to generate jobs.

Let me finish.

And I’m also being critical of the 9-9-9 plan, because most people would face a tax increase. They’d face 9 percent sales, which is a huge sales tax hike on top of state sales taxes. They’d still be paying property taxes, still be paying excise taxes. These plans are all very half-baked. They haven’t been costed out in a serious way.

JUDY WOODRUFF: Very brief final word.


Look, this could be a bipartisan deal. Basically, Republicans are saying…

ROBERT KUTTNER: No, it couldn’t.

STEPHEN MOORE: … we’re willing to get rid of all these deductions and loopholes in the tax system in exchange for lower rates.

We have done this before, Judy. We did it in 1986, when 97-3 it passed the Senate. We got the rate down to 20 percent. You had people like — remember when the governor of California, not Gray Davis, but the current governor of California…

JUDY WOODRUFF: You mean Jerry Brown?



STEPHEN MOORE: When he ran for president, he ran on a flat tax idea.

ROBERT KUTTNER: And he lost.

STEPHEN MOORE: So I think this is something you could get liberals and conservatives to agree with.


ROBERT KUTTNER: No way, because…


JUDY WOODRUFF: This is just the beginning of a discussion of taxes.

Gentlemen, thank you both…


JUDY WOODRUFF: … Stephen Moore, Bob Kuttner.