NEW YORK ( TheStreet ) -- Steve Forbes, chairman and editor-in-chief of Forbes Media, stands by Rick Perry's tax plan despite bad reviews.

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.

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.

Barter is a cumbersome process, money makes it easier. But if you don't have a standard-- like if you are driving and you don't know what the mile is so you don't know if you are going only 60 mph or 120 mph or 30 mph it just makes life infinitely difficult. The key thing is when you have a stab le measure of value, people do more things people invest more. When people don't invest, when people don't consume, then you know something is artificially blocking it. In this case the Federal government.

Would you opt for Perry's optional flat tax or the current income tax code?

I think everyone 99% would go for a flat tax simply because you can do it in 5 minutes instead of 50 hours of gathering all your papers and all that kind of junk. It makes life infinitely easier. Hong Kong's had a variation of this for years. You can go with a flat rate or you can go with their progressive system with various deductions. You figure it out for yourself. We have a two tier system today with the code and that crazy alternative minimum tax. This way you can do the 15% or 20% or if you want to punish yourself, if you have low self-esteem, you can stick with the old code and go through all that rigmarole.

So you personally would choose the 20% with no deductions versus a higher rate with deductions?

I would choose Perry's or almost anyone else's.

Let's get to spending cuts then. Perry proposes slashing government spending to 18% of GDP that's requiring about $900 billion in annual spending cuts. Where are three places we can cut right now that won't destroy our economy in the short-term?

Well, returning resources to the states. You see it in education. There are a lot of functions in the government that could be easily put back to the state level. Medicaid would be much better run on the state level than Washington having a one size fits all system which is collapsing in of itself. And remember we were at 18%-20% of GDP spending just three or four years ago so it isn't like we are going back to something we did in 1929. You could phase it in within three or four years and it could get back there. Not only because of a little bit of belt tightening or returning things back to the people but also you get a huge boost from growth. As the growth goes up, spending as a proportion of the economy starts to drop.

-- Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.

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