Flat Tax/VAT - Perry is pushing
Perry is pushing a flat tax that is akin to a value-added tax as described by Ezra Klein. As a liberal Democrat, these approaches make sense. Why doesn’t President Obama pick up on this and take it to the Republican Congress and say, hey, this is your guy’s idea, we like it, let’s reform the tax code now?
“1) We need a flat tax, writes Rick Perry: "On Tuesday I will announce my 'Cut, Balance and Grow' plan to scrap the current tax code, lower and simplify tax rates, cut spending and balance the federal budget, reform entitlements, and grow jobs and economic opportunity. The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents...By eliminating the dozens of carve-outs that make the current code so incomprehensible, we will renew incentives for entrepreneurial risk-taking and investment that creates jobs."
2) Flat taxes are the same thing as VATs, writes Leonard Burman: "The flat tax is a VAT, not so different from the taxes popular around the world. Under one variant of VAT, called a 'subtraction-method VAT,' businesses deduct the cost of inputs from gross receipts and pay tax on the difference--the value added. It is basically a sales tax where the tax is collected in stages from each producer on the supply chain rather than all at once from retailers (as in the retail sales taxes that are common in the US). A flat tax adds one more wrinkle: businesses are allowed a deduction for wages paid, but the employees pay the “flat tax” on their wages directly. If that’s all that happened, the tax burden would be identical to the VAT (assuming the same level of compliance), but the flat tax also allows an exemption for every worker."”