GOP candidates offer a diverse set of economic plans

Posted Oct. 26, 2011, at 9:05 p.m.

At a moment when the fragility of the economy ranks at the top of American concerns, sharp differences have begun to emerge in how the leading GOP contenders for president would aim to solve the problem, illuminating not only a diversity in approach, but a striking contrast in the governing philosophies of the candidates themselves.

The array of propositions range from those that are incremental, complex and possibly achievable, to slogans and ideological rallying cries that would have enormous difficulty becoming law.

The latest to put forward a blueprint is Texas Gov. Rick Perry, who gave a full embrace to a number of long-standing and far-reaching conservative goals.

“My plan does not trim around the edges,” Perry said, as he unveiled it Tuesday in South Carolina.

Its centerpiece is a proposal to give individuals the option of paying a 20 percent flat tax. Perry would also reduce the corporate tax rate from 35 to 20 percent; eliminate taxes on dividends and capital gains; make deep, unspecified cuts in federal spending, and establish individual retirement accounts outside the Social Security system.

Perry’s plan represented a sharp and intentional contrast to the less radical 59-point program put forward last month by former Massachusetts Gov. Mitt Romney, one of the leading contenders for the Republican nomination.

Though Perry did not mention his rival by name, he spoke dismissively of those who “simply offer microwaved plans with warmed-over reforms based on current ingredients.”

Perry won strong praise from conservative economists and activists, who were pleased that he adopted many of their long-held goals. In doing so, Perry’s plan could help to reverse the slide his campaign suffered as the result of his weak performance so far in the presidential debates.

“I am impressed at the level of detail. For someone who was supposed to be thin, there’s a lot there,” said Douglas Holtz-Eakin, who served as top economic adviser to 2008 GOP nominee John McCain’s campaign. “This is a very close cousin to some very serious plans that have been put forth historically.”

Added anti-tax activist Grover Norquist: “This does not solve all the world’s problems at once, but it’s a huge step in that direction.”

The proposal would also be a boon to the wealthiest Americans, which is one reason that previous flat-tax proposals, though appealing in their simplicity, have never gone very far politically.

“The obvious winners are the rich,” said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. “How big, we don’t know yet.”

President Barack Obama’s campaign made a similar point.

Perry’s flat tax plan “radically restructures the tax system and shifts a greater tax burden onto the middle class,” its policy director James Kvaal wrote in a memo released shortly before Perry’s speech.

While the Republican candidates differ on the specifics of their plans, the frame of the argument against the current occupant of the White House is the same: Obama contends that the rich are not paying their fair share of taxes, the GOP contenders counter that wealthy Americans, along with everyone else, are paying too much. What’s bloated, they insist, is government.

Flat-tax proposals, which have been proposed by presidential candidates far back as Democrat Jerry Brown in 1992 and Republican Steve Forbes in 1996 and 2000, are enjoying a political resurgence.

Former House Speaker Newt Gingrich has a plan somewhat similar to Perry’s, in that it would give taxpayers an option of paying a 15 percent flat rate. And former Godfather’s Pizza CEO Herman Cain’s signature “9-9-9″ plan would combine a flat income tax with a new national sales levy and corporate taxes, all at 9 percent.

Though “9-9-9″ was a catchy slogan that briefly propelled Cain to the top of the Republican field, a new Washington Post-ABC News poll indicates that it is now out of favor as voters have become more acquainted with its effects, which are heavily weighted toward the benefit of the wealthy.

In the poll, 56 percent of all respondents and about half of the most conservative Republicans and independents expressed unfavorable impressions of the 9-9-9 plan. By comparison, respondents were about evenly divided on the idea of a flat tax. Among conservative Republicans and independents, however, nearly three-quarters said they view the idea positively.

Presidential campaigns understand that economic proposals are about more than numbers and fine print. Voters also look to them for a sense of a candidate’s values and priorities.

“To me, the best economic plans are narratives,” said Columbia Business School dean Glenn Hubbard, who was a top economic adviser to President George W. Bush and who now supports Romney for president. “They tell the voters whether the candidate understands how the economy works, and how they would approach it.”

If the measure of a candidate’s boldness is the array of entrenched interests he is willing to battle, none arguably would top former Utah Gov. Jon Huntsman, who would eliminate every tax credit and deduction and set a three-tiered tax system of 8 percent, 14 percent and 23 percent.

Libertarian Ron Paul is the most radical. He would scrap the income tax entirely and argues the government never had the right to impose it in the first place. He claims he could balance the federal books through excise taxes, limited tariffs and drastically shrinking government.

Rep. Michele Bachmann of Minnesota, who often cites her credentials as a former Internal Revenue Service attorney, also says she would “completely abolish the tax code” by replacing it with the flat and simple tax. However, she has not produced a detailed plan for doing so.

Against all of those proposals, Romney’s economic plan, released last month in a 160-page book, takes a more cautious approach.

Romney would make more incremental changes to the tax code, though he promises to ultimately simplify it and reduce rates. Romney’s plan also focuses more heavily than the other candidates’ on trade, including a threat to slap China with higher tariffs if it does not boost the value of its currency.

Romney would reduce the maximum corporate tax to 25 percent, five percentage points higher than Perry proposes. He would also eliminate taxes on interest, capital gains and dividends, but only for Americans making less than $200,000.

In its detail, Romney’s proposal reflects the management consultant he once was, said Alex Brill, a research fellow at the conservative American Enterprise Institute. “It’s much more an action plan of what he expects to achieve and accomplish.”

Romney has argued that while a flat tax sounds good in principle, it is not politically realistic. Nor does he make any apology for the relative complexity of his plan.

During the Washington Post/Bloomberg debate at Dartmouth College in New Hampshire this month, Cain asked Romney whether he could actually name all 59 points of his plan.

“I have had the experience in my life of taking on some tough problems. And I must admit that simple answers are always very helpful, but oftentimes inadequate,” Romney retorted. “And in my view, to get this economy going again, we’re going to have to deal with more than just tax policy and just energy policy, even though both of those are part of my plan.”

At the same time, Perry sidestepped some of the political land mines that have doomed earlier flat-tax proposals.

Because it is optional, those most likely to be hurt by the flat tax, primarily lower-income Americans, could exercise the choice to stay within the current tax system. And the most popular middle-class deductions, such as those for state and local taxes, mortgage interest and charitable contributions, would remain intact for those making less than $500,000.

“He’s dodging a few bullets here,” said Mike Franc, vice president of government studies for the conservative Heritage Foundation. “My guess is that the distribution tables [measuring its relative impact on the rich and poor] will be less of a killing field” for the plan’s opponents.

But as a result of the flexibility that Perry has incorporated into his plan, Franc added, it will be difficult for analysts to accurately predict what its economic and fiscal impact will be.

“If you’re at the [congressional] Joint Tax Committee or the Office of Management and Budget trying to model this thing, good luck,” Franc added.

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