Was it only a week ago that I explained how Herman Cain’s 9-9-9 plan fit within the modern Republican tradition as regressive tax reform as campaign cure-all? That I mentioned the flat tax as a product of this process that had been supplanted by 9-9-9?
I spoke too soon. First, Rick Perry hinted that he’d be unveiling a flat tax – an optional 20 percent tax with a $12,500 deduction. Then Steve Forbes, feeling a (well-earned) surge of relevance, endorsed Perry. And now Newt Gingrich comes onstage, giving the flat tax his approval as a Big Idea. Give people an option: The flat tax or their old, cruddy code. (This, too, is a Forbes idea.) Perry wants 20 percent? Ha, ha. Gingrich wants “15 percent or less.”
This optional flat tax system will create a new personal deduction for every adult of $10,000 to $12,000 (double for married couple), which would be above the established poverty level at $40,000 to $48,000. The current $1,000 tax credit for each child age sixteen or younger would also apply, as would the current earned income tax credit (EITC).
An optional flat tax reform will be simple: tax returns can be done on one sheet of paper. Subtract from income a standard deduction and deductions for charity and home ownership, multiply the result by the fixed single rate of taxation of at most 15%, and the process is over.
The optional code idea really took off (insofar as an idea that wasn’t enacted “took off”) in the mid-aughts, after George W. Bush was re-elected, and Flat Taxers wanted their idea to be his big domestic legacy. What surprises me about both the Perry and Gingrich plans is that the deduction isn’t means-tested. In 2005, Flat Taxers realized that their plan became somewhat progressive – and better on revenue – if people making above a certain income didn’t get the deduction.