Perry Backs Radical National Sales Tax Plan To Starve Federal Government

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Rick Perry’s recent political manifesto Fed Up doesn’t just hint that Social Security should be privatized. It also advocates for a farther-reaching overhaul of the tax code than most conservatives support.

Perry says that government’s access to new sources of revenue should be fundamentally limited — either self-imposed by Congress, or by the Constitution itself. “One option would be to totally scrap the current tax code in favor of a flat tax, and thereby make taxation much simpler, easier to follow, and harder to manipulate,” Perry writes.

“Another option would be to repeal the Sixteenth Amendment to the Constitution (providing the power for the income tax) altogether, and then pursue an alternative model of taxation such as a national sales tax or the Fair Tax. The time has come to stop talking about fixing the broken and burdensome tax code and to take bold action to replace it with one that is not a burden for the taxpayer and that provides only the modest revenue needed to perform the basic constitutional functions of the federal government.”

Most Republicans advocate for flattening and simplifying the code. Few call for a single-rate income tax.

But the Fair Tax is a zombie policy that refuses to die in some quarters of the right. It was advocated most famously and persistently by former Arkansas Governor Mike Huckabee.

A Perry spokesman did not return a request for comment on whether Perry had a substantive or political preference for either policy. Fair Tax is a version of a national retail sales tax of 30 percent, though using sleight-of-hand its supporters claim the rate would be 23 percent. If implemented as envisioned it would eliminate individual and corporate federal income taxes, the estate tax, and the payroll tax.

National sales taxes are highly regressive, so the Fair Tax compensates by tracking monthly household income and disbursing partial rebate checks to the poor and middle class. On paper, it takes in about as much revenue as the federal government does now, but that’s because it doesn’t subtract this rebate or other associated expenditures from that figure. For instance, as Bruce Bartlett once explained, the Fair Tax applies to government purchases — in other words, it juices revenue figures by making the government pay a 30 percent surtax on all of its purchases. That higher spending isn’t factored in to the Fair Tax.

At 60 percent it might work. At 30 percent (or 23 percent, to grant advocates their premise) it would slash revenues by hundreds of billions of dollars.

But for Perry, that’s the point — it’s what he means when he writes about “the basic constitutional functions of the federal government.” He envisions a federal government that’s highly circumscribed. The book is a root-and-branch critique of post-New Deal America, from which Perry calls for a “renaissance” — to a government that eschews direct services like Medicare and Social Security (programs he says are Constitutionally dubious) and provides mainly for the national defense.

But the government would likely have to be downsized before either of those tax reforms were implemented. Currently, the Treasury collects less revenue as a percent of GDP than it has at any time since the 1950s, and yet its obligations haven’t shrunk. Without consensus on these massive cuts, his tax reforms would dramatically hasten a fiscal crisis.

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ABOUT THE AUTHOR

Brian Beutler is TPM's senior congressional reporter. Since 2009, he's led coverage of health care reform, Wall Street reform, taxes, the GOP budget, the government shutdown fight and the debt limit fight. He can be reached at brian@talkingpointsmemo.com
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