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Forbes: Why Perry's Right on Taxes

Now in terms of Perry's tax policy; the Tax Policy Center said his tax cut plan will cut about 27% in revenue in 2015. Can we actually afford that?

Forbes: Well, those revenues assume there is no growth no increase in wealth when you change taxes. Back in the mid 1980's when we had a big tax debate, one of the Senators, the head of the Senate Finance Committee, as a joke asked the Congressional Budget Office to run the numbers if you had a 100% tax rate, or you know 95%, he came back and said 'my gosh, that would be a fantastic increase in revenues.' It would destroy the economy so they don't get the dynamics of changes in the tax code.

But where is that growth going to come from?

The whole thing. The purpose of tax rates it's a price and a burden so when you lower the price of goods things like risk taking, success and productive work you get more of them. John Kennedy cut income tax rates across the board 22% in the early 60's. If you did the static method, you would find 'oh my gosh the government would blow a hole in the budget.' Instead, we had an economic boom and revenues went up.

It's not just Washington, it's what's good for the country. We are going to have to have reforms of entitlements, we are going to have to stop spending what we don't have but the key thing is that while you are doing that you have an economy that is growing. We did that in the 1980's to an extent and there is no reason why we can't do it again today.

So then the best way for the economy to grow within Perry's tax plan, what is it?

Well, you have a stable dollar, you have a simple tax code ... [and] obviously every candidate wants to repeal ObamaCare. There are still some doubts about Governor Romney since he put a mini version of ObamaCare into Massachusetts, but if you got rid of ObamaCare and did those two other things, stabilize the dollar and simplify the tax code, you'd start to see this economy blossom rapidly.

What makes you so sure that consumers would actually spend that extra money that have versus saving it?

It's not about spending it. It's a matter of a whole thing about money. Government doesn't create money. Money comes from people doing transactions with one another, it just makes it simpler than doing barter.

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