Perry: Tax Cuts For All, Protect Social Security — And Privatize It

Texas Governor and GOP presidential front-runner Rick Perry rallied supporters Thursday, September 8, 2011 at Roger's Gardens in Corona Del Mar, CA.
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Rick Perry gave a major speech in South Carolina on Tuesday, laying out his “Cut, Balance and Grow” economic plan — the centerpiece of which is a tax reform proposal that would give people the choice of filing their taxes under the current code, or a 20% flat tax.

“It neither reshuffles the status quo, nor does it expand the ways that Washington can reach into your pocketbooks,” said Perry — in an apparent swipe at both Mitt Romney’s relatively modest tax proposals, and Herman Cain’s “9-9-9” plan and its national sales tax. “It re-orders the way they do business in Washington, by reinventing the tax code and restoring our nation to fiscal health through balanced budgets and entitlement reform.”

Perry showed a huge stack of many reams of paper, comparing it with a simple postcard in his hand.

“The size of the current code is more than 72,000 pages. that’s represented by this pallet, over here, and the reams of paper. That’s what the current code looks like. The best representation of my plan is this postcard. That’s what we’re talking about right here. Taxpayers will be able to fill out their taxes, and file their taxes, on that.”

The political benefit of such a plan should be obvious: Allowing wealthier individuals to take a huge tax cut, while in theory not necessarily raising taxes on lower-income people who would not do as well under a flat tax, by at least giving them the legal option of paying a lower rate with more paperwork.

Perry also called for a drop in the corporate tax rate to 20%, while also eliminating loopholes. He would also not tax repatriated profits, if the taxes were already paid in the countries where the profits were earned. And, for a limited time, he would offer a reduced tax rate of 5.25% on repatriated earnings.

“Tax rates have consequences. The liberals myopically ignore the realities of human nature. They think raising rates will raise revenue,” said Perry. “What they don’t understand is that large employers have choices. And i might add, so do wealthy individuals. And that includes moving money offshore. When the federal government tries to take too much, they end up hurting the very people they supposedly seek to help, the working class.

“We need tax policy that embraces the world as it is, not as some liberal ideologue wishes it to be. The goal of my Cut, Balance and Grow plan is to unleash job creation, to address the current economic crisis, while at the same time generating a stable source of revenue to address our record deficit and put our fiscal house in order.”

On Social Security, Perry appeared to give two contrary messages: To uphold the solvency of the program — and to allow young workers to divert funds away from it.

From the prepared remarks:

Second, we will end the current pillaging of the Social Security Trust Fund by Washington politicians. Here is the hard truth: the trust fund is full of IOU’s, without a single dime of money left over from what workers have paid in. The politicians have borrowed against it for years. And in order to redeem the IOU’s in the fund, they will have to either raise taxes or cut spending on other programs to replenish it.

Here is the other hard truth: if we don’t act, in 25 years benefits will be slashed 23 percent overnight. Protecting Social Security benefits begins with protecting the solvency of the fund, and stopping all current borrowing from the fund, just as we have done with the highway trust fund.

But this is then immediately followed by:

The third principle of reform is to allow young workers to invest a portion of their payroll taxes into private accounts if they so choose.

I am not naïve. I know this idea will be attacked. But a couple of facts are worth stating: one, the return on investment in Social Security is so small it is like an interest bearing savings account. Over the long-term, the markets generate a much higher yield.

Second, opposition to this simple measure is based on a simple supposition: that the people are not smart enough to look out for themselves. The liberals think the American people cannot be trusted to safeguard even a portion of their own retirement dollars. It is time to end the nanny state and empower our people to exercise greater control over their money.

Of course, allowing young workers to invest a portion of their payroll taxes into private accounts would, of course, result in those same funds not going to previous recipients, and thus weakening the fiscal solvency of the program for current and near-future retirees, and likely making necessary the tax increases or sharp discretionary spending cuts that Perry warned about immediately before.

(For more on this problem, see TPM’s examination of Herman Cain’s proposed “Chilean Model” for Social Security, which would do away with the public program as it is known and replace it with an individual mandate to invest in private pension funds.)

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