Rick Perry released his tax reform plan yesterday. The proposal—along with Perry’s energy plan and his promise to balance the federal budget—has clarified how Perry would govern the country if he’s elected president: make the rest of the United States as much like Texas as possible.
There’s a term for this, a word that pundits bandied during the George W. Bush years and which we need to dust off.
Perry’s solution for the country’s economic problems is apparently to replicate the Texas approach to taxes, government spending and job creation. The Texas Way would be a boon to industry and would likely create jobs. But there’s a cost: Little investment in education, health care and other social programs. And a badly degraded environment (more on that further down).
In a speech in South Carolina yesterday, Perry proposed an optional 20 percent flat tax (more details here). I say optional because, under Perry’s plan, Americans would have a choice: pay their tax rate under the current system or pay the flat tax.
The plan is already under attack from the left and the right. I do find it amazing that Perry is pitching a bold, simple way to pay your taxes, but, in fact, his plan could complicate the tax code. Under his proposal, taxpayers would have to calculate the taxes they owe under two systems and then decide which is cheaper. (Has anyone checked to see if TurboTax is backing Perry?)
The bottom line is this: Perry’s plan would result in a huge tax cut for wealthy Americans—who pay a top tax rate of 35 percent. But middle-class and lower-income Americans wouldn’t necessarily have to pay more (as they would under Herman Cain’s 9-9-9 plan).
So, it’s not regressive, really. It just helps the rich. Wealthy people get a massive tax break, while everyone else gets nothing. Oh, I forgot to mention that corporate taxes would shrink, at least in the first year.
The net effect would be a large drop in revenue for the federal government. That’s probably the idea.
I haven’t yet seen any estimates of how much money Perry’s 20 percent flat tax would deprive the federal government, but it’s likely quite a bit.
Perry also pledges to balance the federal budget. That’s a worthy goal, of course. But combined with Perry’s tax proposal, it could create a serious problem.
Starving the government of revenue while simultaneously balancing the budget would result in almost unfathomable budget cuts.
It’s hard to imagine how much money we would have to cut from the budget to make federal spending balance out with the plunging revenues envisioned in Perry’s tax plan. Medicaid, Medicare, Social Security and defense spending—the big ticket items—would all take massive reductions.
At the same time, Perry has pitched a jobs/energy plan that focuses on domestic fossil fuel production. And he promises to eviscerate—or streamline, depending on your point of view—federal regulatory agencies, starting with the EPA, in order to spur job growth.
So Perry’s vision is taking shape: low taxes, low spending, lots of oil and natural gas drilling, and business-friendly regulation.
Remind you of any place?
The business-friendly Texas model has created a good economy the past decade. Though Texas has felt the recession, it’s also created more jobs than any other state.
But can the Texas model be exported? Would it create jobs all across the country? I have no doubt that corporations and wealthy individuals would fair very well under a President Perry. Some states might see job growth. But would Perry’s approach create jobs in Michigan?
And at what cost? There’s another side to the so-called Texas Miracle.
Our low tax, low-spending approach has left Texas with chronically under-funded education and health care systems. Our graduation rate is low, our dropout rate high. The number of Texans without health insurance is larger than the population of Costa Rica.
Our poorly funded government programs have caused one crisis after another—from Child Protective Services to the Texas Youth Commission to state centers for the developmentally disabled.
Our drilling and lack of environmental regulation has left Texas with some of the most polluted air and water in the country, and quite a few cancer clusters.
Many Texans—at least the ones who vote—like the state the way it is and are perfectly comfortable with this grand tradeoff.
The question for voters in the rest of the nation evaluating Perry’s plans is this: Do they want their country to look like Texas?