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Republican presidential candidate Rick Perry says he knows how to unleash the U.S. economy and balance the federal budget at the same time. The centerpiece of his plan is a single, optional, income tax rate of 20 percent. The Texas Governor outlined his proposal yesterday in South Carolina, which holds its Republican primary early next year. As NPR's Scott Horsley reports, flat taxes seem to be gaining traction in the GOP.
SCOTT HORSLEY, BYLINE: When it comes to revving up Republican voters, the tax plan popularized by Herman Cain has been anything but flat.
HERMAN CAIN: The 9-9-9 plan that I have proposed is simple, transparent, efficient, fair and neutral.
HORSLEY: And evidently contagious. Joseph Thorndike, who directs the non-partisan Tax History Project, says now that Cain has jumped to the top tier in Republican polls, other GOP hopefuls are rushing to play catch up.
JOSEPH THORNDIKE: Herman Cain has really changed the debate, I think. I didn't really think that his plan would ever rise above the level of being treated as a gimmick. But people have really latched on to his idea.
HORSLEY: Rick Perry jumped in yesterday with his 20 percent flat tax option. And Newt Gingrich is suggesting a flat tax of 15 percent.
Still, if Cain's success shows the intuitive appeal of a flat tax, Thorndike says it also demonstrates the hazard of bumper-sticker economics.
THORNDIKE: When he starts out with a 9-9-9 and everyone says this is horribly regressive, and he says, well, actually I meant a 9-0-9 for people under a certain amount of income. And I'm telling you that's not the last change that Herman Cain is going to have to make in the 9-9-9, or anybody. Because to make taxes work well, to some extent you have to make them a little more complicated.
HORSLEY: Tax analysts warned that Cain's original plan would have resulted in more than three out of four families paying higher taxes. So when Perry introduced his plan yesterday, he included an option: taxpayers can pay under the current tax code, or his 20 percent flat tax, whichever results in a smaller bill.
RICK PERRY: We need a tax code that unleashes growth instead of preventing it. That promotes fairness, not class warfare.
HORSLEY: Perry's plan would also cut corporate tax rates to 20 percent, and eliminate the tax on dividends and capital gains. By doing away with those investment taxes, Perry would give a big windfall to the wealthiest Americans. Thorndike notes Ronald Reagan went the opposite direction, taxing earnings from capital at the same rate as ordinary income.
THORNDIKE: I mean, Ronald Reagan, when he was trying to sell his tax reform plan, you know, he said this is going to be fair, because the rich people are going to pay at the same rate as the bus driver. And that issue about the taxation of capital gains was at the heart of the bargain. And we're nowhere near that kind of a bargain now.
HORSLEY: Bruce Bartlett was a policy advisor in the Reagan White House and the author of a forthcoming book on taxes called "The Benefit and the Burden." He says the idea behind today's progressive tax code, in which the wealthy are taxed at a higher rate, has lost ground since the 1980s.
BRUCE BARTLETT: People have come to believe that it's OK for very rich people to pay virtually nothing. And they seem not to care when people like Herman Cain talk about massively raising taxes on the poor and the middle class. This is really quite astounding because there are certainly far more poor and middle class people in this country than there are rich people. But many people who would be worse off appear to support them.
HORSLEY: Thus far, Mitt Romney has steered clear of the flat tax bandwagon. Romney does want to do away with taxes on dividends and capital gains, but only for those making less than $200,000. And while he favors a simplified tax code, Romney says Cain's proposal goes too far.
MITT ROMNEY: I've had the experience in my life of taking on some tough problems. And I must admit that simple answers are always very helpful, but often times inadequate.
HORSLEY: Back in the 1990s, Romney denounced another flat tax proposal from publisher Steve Forbes as a tax cut for fat cats. Today, Forbes is advising Rick Perry. And Perry told CNBC, he considers Romney to be a fat cat.
Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
