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Rick Perry unveils flat tax

Republican presidential candidate Gov. Rick Perry holds up a postcard representing his flat tax plan at the ISO Poly Films factory on October 25, 2011 in Gray Court, S.C.

Kai Ryssdal: One can -- without too much hard looking -- start to detect similar themes emerging as the Republican presidential campaign grinds on.

Today was Texas Governor Rick Perry's turn. He gave big speech about his economic plan down in South Carolina. The heart of it is an optional 20 percent flat income tax.

Perry's isn't the only flat tax in the mix. Herman Cain has his 9-9-9 plan. It all sounds simple enough, but Marketplace's John Dimsdale reports there will be some bumps along the way.

John Dimsdale: Flat tax proposals are nothing new. What's different with the Perry plan is people can choose the flat tax, or not. But if they pick the flat tax, they still get to keep deductions for mortgage interest, state and local taxes, and charitable contributions. Perry says one attraction of the flat tax is its simplicity.

Rick Perry: Central to my plan is giving every American the option of throwing out that three million words of the current tax code in order to pay a 20 percent flat tax on their income.

A 20 percent tax rate would be a big break for high-income earners who now pay 35 percent of their income to Uncle Sam. And 20 percent would be a tax increase for some low-income earners. That's the very definition of a regressive tax.

But Kevin Hassett, a former adviser to Republican presidential candidates, says Perry's plan exempts $12,500 of income for every person who files.

Kevin Hassett: If you have a large family, then you could have a significant amount of income before you pay any tax. Which means that it would be a lot more progressive than you might think.

Another attraction of a flat tax is that it rewards economic enterprise. University of Michigan economist Joel Slemrod says allowing entrepreneurs to keep more of their money means they have an incentive to earn more and invest in equipment or job creation. While the system we have now, he says, inhibits growth.

Joel Slemrod: Whatever people do to earn more income, whether it be invest in an education or work harder, a graduated tax system means the tax penalty to that goes up as you earn more income.

But a flat tax generates less revenue for the government. That's true for both Herman Cain's 9-9-9 plan and Perry's optional plan, which allows taxpayers to find the lowest tax rate available. And less revenue means cutting more government spending.

In Washington, I'm John Dimsdale for Marketplace.

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