Bloomberg’s Ramesh Ponnuru neatly explains the revenue problem with the right’s hottest fiscal fashion:
[R]eplacing a progressive income tax with a flat tax necessarily means slashing revenues, raising middle-class taxes or both.
Set the new flat rate at a level that can raise as much money as the current tax code and the middle class will pay more. People in the middle of the income spectrum, that is, will have to make up for the sharp fall in rates on high earners. Set it low enough that middle-class taxpayers pay the same as they do now and revenues drop. The only way around this dilemma is to assume that the flat tax will cause an implausibly large boost to economic growth.
That’s right. But the latest GOP proponent of a flat tax, Rick Perry, isn’t even making a supply-side argument about unleashing growth through tax cuts. He’s proposing massive spending cuts. Witness Perry talking with Chris Wallace on Fox News Sunday this weekend:
WALLACE: You did propose a major tax reform plan this week… let’s drill down into some of the details of it…. Your campaign said and I sent it out to a private acting firm, this would mean $ 4.7 trillion less in revenue over the first six years, from 2014 to 2020. Doesn’t the Perry plan blow a hole in the deficit?
PERRY: You got to look at the spending cuts as well and you have to look at the dynamics of the growth that goes on here. I mean, you can’t just take one piece of this and say here’s the plan. It’s not…. This is a plan that gives people an option and I think a good option, to be able to do their taxes on a post card — literally taking that 20 percent tax — flat tax, deducting mortgage, deducting charitable, deducting (INAUDIBLE) taxes, $12,500 for each dependent, subtracting it and sending it in — I mean, literally on a postcard. It’s that simple to put it on that postcard right there. That’s it.
And then, people have the confidence — people have the confidence, the job creators, this plan is about getting people back to work, putting the confidence back in the American entrepreneur to know that the regulations are not going to be there, that these tax burdens….
And we will balance that budget in 2020. No one says it’s going to be easy, but we need a president who has a commitment to that, who’s got a track record of doing that and I have….
WALLACE: OK. Let’s talk about this question of growth because, as I say, your campaign says, static scoring, which is just going with the numbers and the assumptions as they are, almost $5 trillion less in revenue over the first six years. Now, your campaign says, yes, but you got to get economic growth and that’s going to end up being a $1 trillion more.
Here’s the problem with that — everybody agrees that if you lower taxes, you do increase economic growth. But even conservative think tanks like the Heritage Foundation say almost never do tax cuts pay for themselves. That you still end up, you may get some increased economic growth, but you still end up with lower revenue.
PERRY: And you know what? There’s nothing wrong with lower revenue. I think Americans are ready for Washington, D.C. to quit spending money.
WALLACE: But we have a deficit problem, sir.
PERRY: We will pay off that deficit. Our plan balances this budget in 2020. We’ll pay off the debt. No one else on the stage is laying of on a plan. Mitt Romney basically just nibbles around the edges. He leaves the rates where they are. Mr. Cain’s plan, it creates two new sources of revenue. I don’t want more revenue in Washington, D.C.’s hands. I want more revenue in the private sector, job creators’ hands, and American citizens out there. I guarantee you, they’ll make better decisions about how to spend that money than Washington, D.C.
While Perry pays lip service here to increased economic “confidence,” which could stimulate growth, note that he doesn’t reject the premise that his tax plan would require enormous cuts in federal spending. Even Herman Cain has tried to assert, against compelling evidence, that his plan would be revenue neutral. Perry, by contrast, is making a starve-the-beast argument here. And like most starve-the-beast arguments, it’s painfully thin on detail. Pressed by Wallace to be specific, Perry said he’d get rid of earmarks–which constitute a drop in the budget bucket–and would also wring $25 trillion in savings from streamlining some Department of Education programs–leaving Wallace to correctly point out that surely Perry meant $25 billion. But, hey, what’s a couple dozen trillion among friends?
What Perry has characteristic trouble explaining clearly is that he wants to cap federal spending at 18% of GDP–which puts him in league with the Tea Party Republicans in Congress who refused to raise the debt limit this summer. Perry’s “Cut, Balance and Grow” plan even echoes the title of the House conservatives’ “Cut, Cap and Balance” proposal, which served as their futile alternative to striking a deal with the White House. Perry specifically cites that plan as a model for shrinking the government, as well as budget blueprint offered by Pennsylvania Republican Senator Pat Toomey, which the Center on Budget and Policy Priorities calls “even more radical” than the infamous Ryan Plan.
Give Perry points for honesty: He doesn’t pretend that his tax plan is anything but a huge revenue-loser. And give him points for short-term political strategy: Republican primary voters want spending cut, deeply and quickly. This is a Tea Party proposal, and Tea Partyers should love it. How Perry would explain his plan to independent voters in a general election is a very different question.