Governor Rick Perry is proposing a 20% flat tax with some exemptions for lower income earners (under $500,000), like $12,500 for individuals and dependents as well as deductions for mortgage interest, charity donations and state and local taxes. Perry would also eliminate the tax on social security benefits, capital gains, dividends and estates. Finally, Perry would reduce the corporate tax rate from 35% to 20% as well as lower the tax on overseas capital companies bring back into the U.S.
The Tax Policy Center estimates that Perry's plan would cut Federal revenue by 27% in 2015. The Congressional Budget Office says that the Federal government made $2.3 trillion in 2011 so a 27% cut would leave the government with just $1.6 to spend.
In 2011, the government spent $3.6 trillion, and almost one trillion of that was spent on just social security and net interest payments alone. The CBO estimates that government annual spending on net interest will more than double in the next ten years.Perry does want to cut spending to 18% of GDP which would require $900 billion in annual spending cuts, but that would still amount to $2.7 trillion in spending leaving a sizable deficit of nearly $1.1 trillion. Perry's flat tax would undoubtedly help the rich but might do little for lower income earners. Those paying taxes on $10 million, for example, would see the amount they had to pay each year fall by 42% while those making only $50,000 would see only a 20% decrease in their taxes. Steve Forbes has been an ardent supporter of Perry throughout the campiagn and has even gone as far to say that a vote for Rick Santorum or Ron Paul is really a vote for Mitt Romney. TheStreet sat down with Forbes to see what parts of Rick Perry's tax plan were positive, where his plan fell short, and where to cut spending without damaging the economy.