Oct. 25 (Bloomberg) -- Rick Perry moved to re-frame the Republican presidential race with a proposal to tear up the tax code and draw a distinction with the more incremental approach of Mitt Romney, the party’s front runner.
The Texas governor brandished a postcard-sized tax return he said would replace the web of paperwork and complex calculations Americans now face with an optional 20 percent flat tax for individuals.
Americans “aren’t searching for a reshuffling of the status quo, which simply empowers the entrenched interests,” Perry said yesterday in South Carolina. “This is a change election, and I offer a plan that changes the way that Washington does business.”
Perry’s challenge is that his approach isn’t as simple as Herman Cain’s “9-9-9” overhaul and it comes late in the process for the Texas governor who rose to the top of national polls within days of announcing his bid only to find himself in single digits after five debate performances.
After a “terrible September,” Perry’s central task now is to emerge as the anti-Romney, said Fergus Cullen, a Republican strategist who is a former chairman of New Hampshire’s Republican Party.
The flat-tax plan, his effort to sharpen debate performances and Perry’s recent hire of seasoned campaign aides “really shows that he’s putting up a fight,” Cullen added. “He’s either going to win or be defeated; he’s not going to roll over.”
Job Creation Plan
Perry’s tax proposal is part of his job-creation plan to balance the budget by 2020, which also includes cutting federal spending to 18 percent of gross domestic product from about 25 percent and overhauling entitlement programs -- including potential cuts to future retirees’ Social Security and Medicare benefits.
He would lower the corporate tax rate to 20 percent from 35 percent and give multinational companies a temporary incentive to bring home foreign-earned income at a far lower rate of 5.25 percent.
“My plan doesn’t trim around the edges and it doesn’t bow down to the establishment, but it is the kind of bold reform that is needed to jolt this economy out of the doldrums,” Perry said. “Those who oppose it, they’re going to wrap themselves in the cloak of status quo.”
Opponents of a flat tax say it would be a tax cut for the wealthy because it lacks the current system’s progressive design in which the higher-earners pay more.
Layer of Complexity
Perry’s version, while billed as simple, also could add another layer of complexity for taxpayers. Because it is optional, it would leave people to calculate each year which system -- the Perry plan or today’s tax code -- would be to their best advantage.
Perry brushed off that concern during a news conference following his speech, saying most people would opt for the flat tax without bothering to do the math. Some businesses, Perry told reporters, may believe they benefit from the current system.
“But for the people who don’t need that, don’t want that, this is the way to go,” he said.
Perry is seeking to recharge his campaign, which surged after he entered the race Aug. 13 yet lost steam following the debates that raised scrutiny of his backing for a Texas law that lets children of illegal immigrants pay in-state tuition at state universities.
“Perry’s timing is very good because Cain’s 9-9-9 plan is under attack, and he’s being severely questioned about it,” said Greg Mueller, a Republican media strategist. He said Perry has “never gotten his sea legs back after those initial performances” at debates, and was overdue “to start talking about what he’s going to do as president.”
Perry added campaign veterans to his staff this week and scheduled his first major ads in Iowa, with 10 weeks to go before voting begins there.
Perry’s economic plan includes changes to social programs that he said would end the “entitlement culture” in America.
Those include raising the age at which future senior citizens become eligible for Social Security and Medicare; limiting future retirement benefits for younger people and letting them invest part of their payroll taxes in private accounts; and requiring wealthier seniors to pay more for Medicare services. Perry said state and local governments should be able to opt out of Social Security and allow workers invest in state and local retirement programs.
Perry’s tax plan sets him apart from Romney, the former Massachusetts governor and second-time presidential candidate who is leading in some Republican primary polls. Romney last month released a 59-point, 160-page jobs proposal that keeps the existing tax system while extending income tax cuts now set to expire and reducing investment taxes and the corporate rate.
Perry said his own plan “is not the length of the novel War and Peace, by the way.”
President Barack Obama’s campaign criticized both proposals as extreme ideas that wouldn’t create jobs. Romney’s and Perry’s plans “would shift a greater share of taxes away from large corporations and the wealthiest onto the backs of the middle class,” Ben LaBolt, the campaign’s press secretary, said in a statement. “The belief that middle class Americans will benefit if we just give another special break to those at the top was long ago discredited.”
A flat tax -- even an optional one -- by definition would be less progressive than the current system, where the top individual income and corporate tax rates are 35 percent.
Tax Plan Details
The 20 percent individual income tax would preserve some deductions, including those for mortgage interest and charitable contributions, and exempt $12,500 for each individual and dependent. The plan also would eliminate taxes on Social Security benefits, inheritances, dividends and long-term capital gains.
Perry drafted his proposal with help from Steve Forbes, who proposed a flat tax when he sought the Republican presidential nomination in 1996 and 2000 and has endorsed the Texan’s candidacy. At the time, Forbes was criticized by Republican primary rival Pat Buchanan, who said it seemed to have been drafted at a yacht club, and by Romney for pitching “a tax cut for fat cats.”
Asked about the criticism, Perry told CNBC of Romney: “I consider him to be a fat cat.”
--Editors: Laurie Asseo, Jeanne Cummings
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