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Believers in small government like Perry’s plan because it will require cuts. “It’s very aggressive,” says Pete Sepp, executive vice-president of the National Taxpayers Union in Alexandria, Va. “The fact that Perry has come out forcefully for a balanced budget amendment as well as an 18 percent of GDP spending cap is a good sign.”
The kinds of budget cuts Perry’s plan would require are far more ambitious than even those contemplated by House Budget Committee Chairman Paul Ryan. In 2020, the year in which Perry wants to balance the federal budget, the Ryan budget would still have a deficit of $405 billion. Perry made his budget-balancing task even greater by arguing against “arbitrary cuts” to defense spending.
“It just strikes me as political pandering at its worst,” says Leonard Burman, a former Treasury Dept. official who now teaches at Syracuse University in New York. “It doesn’t seem like a serious policy proposal.”
In theory, a flat tax raises revenue with the least possible distortion of economic incentives by broadening the tax base and lowering rates. Perry’s plan isn’t precisely what economists have in mind. But Dick Armey, a former GOP congressman who is chairman of FreedomWorks, a Tea Party-aligned group, believes that some kind of flat tax will ultimately prevail. The 71-year-old Texan repeats what he’s been saying for nearly 20 years. “This thing,” Armey says, “will be passed into law when America beats Washington.”
The bottom line: Under Perry’s plan, a family earning $136,000 would see taxes cut by 17 percent. A family making $425,00 would reduce its taxes 49 percent.
Rubin is a reporter for Bloomberg News. Coy is Bloomberg Businessweek's Economics editor.
