Perry's tax plan has winners, losers

WASHINGTON — About 41 percent of households would see their taxes increase under the optional 20 percent flat tax proposed by Texas Gov. Rick Perry and an equal number would receive a tax cut, according to a nonpartisan analysis.

The findings from the Tax Policy Center released Monday are the first independent analysis of Perry's plan, which the Republican presidential candidate detailed last week. The proposals would let taxpayers choose between the current tax system and his simpler approach with a single 20 percent rate and no taxes on capital gains or dividends.

That approach would seem to mean that no one would lose under the Perry plan. The center's contrary finding stems from its assumption that Perry would allow the Bush-era tax cuts to expire at the end of 2012, making the choice between the two systems a decision between tax increases for many households, compared with today.

The center's report said it based this assumption on information released publicly by Perry's campaign, which didn't respond to the center's questions.

In 2015, compared with current tax policy, 40.8 percent of households would pay higher taxes under Perry's plan and 40.5 percent of households would pay less, according to the center's analysis.

The current top tax rate is 35 percent, and about 46 percent of households aren't paying federal income tax this year. As a result, reducing tax rates and eliminating tax benefits for the middle class tends to make the tax system less progressive.

Under Perry's proposal, more than 96 percent of people making more than $500,000 a year would receive a tax cut, while 52.6 percent of people making between $50,000 and $75,000 a year would face a tax increase, according to the analysis.

If Perry instead extended the current underlying tax cuts, no one's taxes would go up, and 61.4 percent of households would see a tax decrease, the report said.

"Our presumption is that Perry wants everybody to move to his plan," said Roberton Williams, a senior fellow at the center. The Tax Policy Center is formed by two Washington research groups, the Brookings Institution and the Urban Institute.

Catherine Frazier, a Perry campaign spokeswoman, didn't dispute the Tax Policy Center's findings.

"This study confirms what Governor Perry has said from the beginning, that American taxpayers in all income groups will be better off under his tax plan," she said in an e-mailed response. "By implementing a 20 percent flat tax rate, we will free the private sector's capital to invest and create jobs."

Perry announced his tax plan Oct. 25 in South Carolina and pitched it as a catalyst for economic growth.

"Each individual taxpayer will have a choice: You can continue to pay taxes, as well as accountants and lawyers under the current system," he said. "Or you can file your taxes on a postcard, with deductions only for interest on a mortgage, charitable giving, and state and local tax payments."

Individuals would choose between the current tax code and a simpler system. In the flat-tax system, each person would receive a $12,500 exemption before the 20 percent rate would kick in. Capital gains and dividends that currently qualify for lower rates wouldn't be taxed. Households with income of less than $500,000 a year could still deduct mortgage interest payments, state and local taxes and charitable contributions.

Perry rival Herman Cain said that Perry's proposal would make the tax system "more complicated."

"I call Governor Perry's plan 'flat tax light,'" he said at the American Enterprise Institute in Washington.