Thursday, November 10, 2011

Is Perry’s Plan a Gimmick?


I know, I know.  Texas Toast and put out to pasture, right?  Not with $14 Million he ain’t.  Do I think he’ll make a comeback?  It would be a miracle, but anything can still happen.  Before he leaves the stage or shrinks down to sub-Hunstman numbers, I do want to talk about his economic plan.  We all agree with the energy thing.  Palin had been talking about it since 2008 and last night even Santorum stole his chili-seasoned fire.  But how about 20-20?  It gives us a GREAT chance to talk about a dirty little secret common with 999, Newt, Michelle and Rick and really shows how weak Romney and Huntsman are.

In a blog post entitled Rick Perry Unveils Optional Flat Tax - But Is It a Solution or Gimmick?, the author questions how effective it really would be:

The Perry flat tax would provide Americans with the option of either filing their taxes under their existing income tax rate or under a vastly simplified flat tax of 20%....This has many wondering how this optional flat tax plan can be revenue neutral?  If the rich pay less and the rest ay what they're already paying - and 47% pay nothing, then tax revenue will decrease.

FreedomZone (why won’t these bloggers use their real names?) does a great job of giving credit to the rest of his plan as well as point out the necessity of making ALL Americans pay something.  The math for revenue neutrality however, isn't simply allowing high income earners to lower rate to 20% and leave 47% not paying anything. If ALL 47% non-tax-paying citizens were RAISED to 20% it wouldn't even make up a pittance of what high income earners pay in taxes.  That's not how it works.   Remember – the top 50% of income earners already ay 97% and the top 25% pay 86%.  Even if every paid an equal rate – actual collected revenue would skew to the top.

Despite the Democratic line "tax cuts for the rich" - it is EXACTLY tax cuts to the “rich” that brings in MORE revenue.  How?  A) It puts more money back into investment and expansion which broaden the the number of employed, B) More corporate taxes are collected (because of more buyers for products hence profits) and C) It INCREASE the amount on profits on wealthy because they make more.

It worked with Truman after FDR raised taxes, it worked for Kennedy and Reagan.  EVERY time.  And not once has raising taxes on “the rich” brought a country out of a recession. Never, ever, never.

Exhibit-A Let's say there are 100 Rich People who pay 50% of the profits in taxes.  Sounds stupid to lower it to 20% right?  No. Now instead of averaging $100,000 in profits each, you give them incentive to make MORE profit. (50% of $100K profit TIMES 100 people EQUALS $5 Million)  If these 100 people now average $1 Million in profits because of a thriving economy, the government makes more money. (20% of $1 Million Times TIMES 100 people equals $20 Million!).  The other economic law is you probably now ALSO have many more people making that amount too. So multiply that even more. The economy itself only needs to do about 15% better than now for all to remain equal.

The dirty little secret of all of these plans is that lowering the Corporate Tax and Capital Gains taxes - drive the economy.  Everything else pales in comparison to "big money" moves that will jumpstart the economy.   Ireland LEAPED to a major economic power by making it the cheapest place to do business.  Texas creates jobs because companies can make more money here.  It’s not brain science.

20_20_vision3 It frankly doesn't matter (in the short term) what Perry does with income taxes.  I would agree it is more gimmick than real reform, but it isn’t a farce by any means.  I think he whiffed on substance.  But the idea to balance the budget by 2020 with a 20% Flat Tax and a 20% Corporate tax is a nice marketing angle.  Unfortunately - he has done a very poor job of selling it in my opinion.  EVEN LIBERAL WALL STREET OCCUPIERS are chanting 9-9-9.  They get it.  And the Cain, Gingrich and Bachmann plans are ALL much more aggressive and helpful long term than Perry's - but Perry's is still good.  It certainly would have an EASIER time of being adopted than those I just mentioned.  That doesn't make it 'better' in my book except against Romney's confusing 59 point spaghetti plan.

No matter WHO is elected President, some modification of their idea will occur.  I like the idea of aiming high which gives more bargaining room in negotiations.  I fear Perry’s would end up being even less substantial.  Reagan was a master of pushing and selling his Supply Side Economics.  Even he ended up settling for cuts that never happened.  So a strong will likely might be as important as the plan itself.  And that narrows the candidates even more than their proposed economic solutions.


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