In a way, I feel sorry for Texas Governor Rick Perry.
When Sarah Palin decided not to run for President, Perry was anointed as the only real conservative with any political heft running for President. After all, he is the longest serving Governor of the nation’s second largest state, a state that remains prosperous despite the national economy generally being in the tank for the past four years. He announced his candidacy to the thunderous roar of making the federal government “as inconsequential in your life as I can.” I’m hoping that statement isn’t a result of introspection – because right now, a Perry presidency looks like an even bigger disaster than the Obama presidency became.
First, Perry proved everyone right when they said he was a lousy debater. Along with the rest of the nation, I can handle a guy who flubs an occasional fact (it happens to everyone). I can stomach the person who comes across as a walking stiff; nobody should be overly confident on a debate stage. But Mr. Perry managed to come in even below the already low expectations set by his campaign and supporters. When Perry was awake enough to pay attention to what was happening on the stage around him, he demonstrated an incredible inability to articulate even the simplest thoughts, much less explain policy decisions a Perry administration would make. In the end, his only recourse was to lash out angrily (a lá Newt Gingrich, but without Newt’s wit) at his competitors. The resulting image is of a slightly dim-witted bully, not a future President of the United States.
Now, we have the Perry economic plan. In announcing this plan, Perry declared it to be “bold.” If by bold, you mean “schizophrenic,” then I agree with you, Mr. Perry. This is nothing more than pandering to various interest groups. If meant as a way to kick-start the conversation about the role of government, then it might be acceptable. But I think he actually meant it as an economic outline, in which case it will only work to drive millions of Americans into destitution and despair. Why? Look under the hood and here’s what you find:
- Tax policy: Perry proposes a 20% flat tax, except it isn’t. It is a 20% personal income tax policy, with deductions for mortgage interest, state and local taxes, and charitable gifts. Worse, for those with incomes under $500,000 the personal exemption increases to $12,500 per person. Taxes on business profits are also reduced to 20%, with no deductions – save for a one-time reduction on off-shore profits to 5.6%, intended to lure overseas profits here to spur job growth. Still, even if you get past the misnomer (a flat tax is just that; one tax rate without any exemptions) then you’re tempted to say this seems reasonable.The biggest complaints regarding the current tax code are the complexity and that the current distribution of the tax burden predominately falls on the middle class. How does the Perry Plan address these two problems? My best guess is by ignoring them. For starters, any taxpayer can opt to keep the current tax plan instead of the new one. Imagine running a business under those circumstances: now you have to track two different tax codes and try to determine which works best for your company (I suppose accounting firms will love it).An entire new level of complexity just got added into your business model, because no business I know is going to arbitrarily choose one plan over the other without doing a full cost-benefit analysis. As to the personal taxes, Perry is correct in assuming most Americans will opt for his single rate plan. After all, a full 50% of American households won’t pay any taxes under it. The remaining half will bear the brunt of the tax burden – which is roughly the same distribution as we currently have, just with less money coming in. Unless you’re in the middle class, in which case you’ll probably wind up paying more in taxes. Brilliant election year strategy (see: Cain, Herman for how well raising taxes on the middle works).
This is no gain, all loss. (You can find the data used to compute tax distribution here).
- Social Security: Perry proposes relieving income taxes on those receiving Social Security, while making it an opt-in program for current workers. Sounds great, except the only people currently paying taxes on Social Security benefits are those with over $50,000 in personal income per couple (how many retired couples do you know with $50,000 in annual income?). As for making Social Security an opt-in program, there’s a very big problem with that plan: current workers actually pay for existing retirees. The. idea that the government takes your money, then invests it into a “trust fund” from which you draw your retirement benefits is patently false. What happens is the government takes those payroll taxes we all pay and uses those funds to pay current retirees. If there’s a surplus, then the government uses that money to purchase T-Bills and then uses those funds to help the general ledger; if there’s a shortage, then the reverse is true. This is a month-to-month accounting system, not an annual line-item budget item. So, imagine what happens if even half of current workers opt out of Social Security? Yes, you guessed it: the entire system goes belly up, threatening in one fell swoop to turn us into Greece, with a national debt ballooning by the billions every month and an unfunded national pension plan. Worse, you and your employer is still obligated to pay those pesky payroll taxes, but with an entirely new level of complexity. Is this now income, since it is being deposited into an investment account? What type of account is it? Who manages it? What level of accountability is there, and to whom?Social Security does need to reform to keep it solvent. But nuking the entire economy in order to do it isn’t very bright.
- Health Care: One of the greatest threats to economic growth, both now and in the future, is the dizzying rate of increase in health care costs. Nobody has yet to put forth a proposal that actually does anything to reduce that curve and Perry joins right in. His plan is little more than “reduce fraud in Medicare.” Lovely idea and it should certainly be part of the agenda. Except we’ve been hearing about that for 25 years now. It seems to me that with that much emphasis on reducing Medicare fraud, it should amount to $1.30 or so by now.
- Balancing the budget: Well, of course. Everyone I know agrees the federal budget should be balanced (except for a few die-hard Keynesians, but they’ve been proven wrong on this so many times over the past 60 years I find it hard to believe they’re still around). But Perry doesn’t offer any specifics aver how he would do it. He does offer platitudes, such as “Pass a Balanced Budget Amendment” and “Cap Federal Spending at 18% of GDP.” He suggests freezing federal hiring – not a bad idea, but we’re not running $1.4 trillion deficits because of federal hiring. He also wants to do away with earmarks. While that is certainly an admirable goal, the President (as leader of the Executive branch) can’t do much about it: appropriations bills are still written by Congress. If some Congressman from Bum Rush wants $800 million for a road to nowhere and can convince a majority of his peers to go along with the idea, it’s getting added into an appropriations bill somewhere.
Frankly, the entire Perry candidacy so far has shown him to be a man whose ambitions far outstrip his talents, ability, intelligence and demeanor. As such, I think his current poll standing is about right (barely treading more water than Michelle Bachman or Rick Santorum). The American people are interviewing candidates for the Presidency, Mr. Perry. Only serious applicants will be considered.