Perry's Plan Falls Short: High Corporate Tax Rates and Generous Exemptions Hurt 'Cut, Balance, and Grow'

Governor Perry made significant strides toward producing a pro-growth tax proposal with his announced “Cut, Balance, and Grow” economic plan. Unfortunately, his plan has some glaring deficiencies.

(1) It is NOT strictly a flat tax and will SHRINK the tax base. The $12,500 personal deduction per individual provides an enormous advantage to large households at all income levels. Further, if a Head of Household of a family of four makes $50,000, he would have NO federal income tax liability under Gov. Perry’s plan. This will dramatically shrink the federal tax base even more than it has under President Obama. If Gov. Perry wants to restore an ownership society where every individual is a taxpayer and has a stake in his or her government, this plan will not accomplish that.

(2) This plan is guaranteed to balloon the deficit in the short term. By allowing taxpayers to choose a tax regime, Gov Perry is guaranteeing every taxpayer a tax-break. As a taxpayer, I say “great”! Unfortunately, Gov Perry does not plan to balance the budget in the short term, and our creditors will want their money back eventually, so we will be piling on to a $16 trillion debt when Pres Obama leaves office.

(3) The reduction in the corporate rate is insufficient to stimulate growth substantially. While I applaud Gov. Perry for recognizing that the corporate tax rate needs to be reduced, most states add another 5%+ or so of state corporate income tax, making a corporation’s effective rate 25%+. That is not enough of a reduction to encourage US corporations to relocate operations from countries like Ireland where they are taxed at 12.5%.

Gov. Perry takes some positive steps, though. Both Gov. Perry’s plan and Herman Cain’s 9-9-9 plan equalize the corporate and individual rates, thereby eliminating an area of regulatory arbitrage. Also, Gov. Perry moves to a territorial tax system, thereby reducing the tax obligation of U.S. multinationals and eliminating an incentive to relocate offshore. Unfortunately, Gov Perry does not reduce the corporate rate sufficiently to make the US an attractive place for foreign and domestic multinationals to invest. This is significant, since there has been no net U.S. corporate job growth in a decade.

By contrast, Herman Cain’s 9-9-9 plan reduces effective corporate tax rates to just over 10% in some states, thereby avoiding Gov. Perry’s problem. At a 10%+ effective tax rate, drug conglomerates might develop AND manufacture their drugs in the U.S. again. There would be no incentive for software giants like Microsoft and Google to shift profits overseas. Net U.S. corporate investment and US Treasury receipts would soar!

(4) Gov. Perry does not plan to balance the budget until the last year of his second term in 2020. While this may be comparable to Congressman Paul Ryan’s plan, it would add trillions of dollars of U.S. debt unnecessarily. If Gov. Perry thinks we have too much debt at the moment, imagine what he will think when he finally balances the budget before he leaves office at the end of his second term.

(5) Gov. Perry wants to audit all regulations passed since 2008. Great!, but why stop there? Why not audit every agency regulation in the Federal Register?

(6) Gov. Perry wants to freeze federal civilian hiring. Great!, but why not reduce the size of the federal civilian workforce to 2008 levels at least–the levels before they ballooned under Pres. Obama. While Gov. Perry is at it, why not lower federal wages to 2008 levels as well!

Gov. Perry wants to eliminate baseline budgeting. That is a LONG overdue common-sense proposal!

There are other good suggestions, like returning federal spending to 18% of GDP. I would prefer to cut spending further and balance the budget sooner without the consideration of an arbitrary spending level.

Gov Perry wants to raise the Medicare and Social Security retirement age gradually. This is a necessary reform if we ever plan to get a handle on those programs.

Gov Perry wants to dramatically increase our domestic energy production as well as repeal Obamacare, Dodd-Frank and Section 404 of Sarbanes-Oxley. I am thrilled those proposals seem to share universal acceptance among the GOP candidates.

Unfortunately, Gov. Perry’s tax proposal falls short of Herman Cain’s 9-9-9 plan in its boldness and stimulative impact. While a FAR cry better than what we have today, it is not enough. Also, Gov. Perry’s plan exacerbates the current problem with our tax code, which rests the burden of paying taxes on the shoulders of too few of our citizens.


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