Rick Perry’s reverse Robin Hood tax plan

A clear trend is developing among the economic plans of the GOP presidential hopefuls: shift the burden of taxation from upper-income to lower-income households. Yesterday, the Tax Policy Center released an analysis concluding that Texas Gov. Rick Perry’s plan would cut taxes on high-income households, raise taxes on low- and middle-income households, and produce bigger deficits. The gist of Perry’s plan is to add an optional federal income tax to the current code: a flat 20 percent tax on (almost all) income less personal exemptions, charitable giving, home mortgage interest, state and local taxes, and all capital gains and dividends income (aptly dubbed an “Alternative Maximum Tax” by Howard Gleckman).

Those earning more than $1 million would see their average tax bill fall by more than half, a tax break of $496,000 in 2015 alone, relative to current policy. The highest income 0.1 percent of households (with income above $2.8 million) would see a tax break of over $1.5 million—even more egregious than the mammoth tax cut they would receive under Herman Cain’s “999” plan.

Meanwhile, Perry’s plan appears to let the Bush-era tax cuts expire in 2013, meaning that lower-income households would lose their expanded earned income tax credit, child tax credit, and the 10 percent bracket. (The John Dunham and Associates analysis for the Perry campaign uses a current law baseline and TPC also concluded that the Bush-era tax cuts would expire on schedule.) The Bush-era tax cuts were regressive and disproportionately benefited upper-income households, but a fraction of these tax cuts have gone to lower- and middle-class households; Perry would effectively do away with these tax cuts while giving higher-income households an even bigger tax cut. This would mean an average tax increase of over $400 for households earning between $20,000 and $40,000. Although this may appear at odds with Perry’s anti-tax ideology, higher taxes for the poor and middle class is in fact entirely consistent with his misleading rhetoric lambasting the “injustice” that nearly half of households don’t pay federal income taxes.

The chart below depicts TPC’s analysis of effective tax rates by cash income level under Perry’s plan versus current policy. On average, households with income under $50,000 see a tax hike. Above this level, tax cuts balloon as income rises. Millionaires would be left paying a lower effective tax rate than a middle class family earning between $50,000 and $75,000. This completely violates the idea of a progressive tax code and the Buffett Rule.

Click to enlarge

The natural result of modestly raising taxes on working families while slashing taxes for upper-income households is hemorrhaging revenue: this is not about “shared sacrifice” or the budget deficit. As my colleague Ethan Pollack points out, the Perry campaign relies on highly dishonest dynamic scoring to claim their tax code produces more revenue. Official budget scorekeepers incorporate behavioral responses but not dynamic growth effects into tax policy analysis, because research shows growth effects are generally small and can break either way depending on how tax cuts are financed (see this CBPP overview of dynamic scoring). TPC’s static model shows Perry’s plan losing $995 billion relative to current law, a decrease of 27 percent, in calendar year 2015 alone ($570 billion relative to the inadequate levels projected under current policy).

Working households would get hammered again when that additional revenue loss is financed with draconian spending cuts, as required by the balanced budget amendment and spending cap component of Perry’s economic plan. This is merely a plan to dismantle government and refund all the savings, plus some of working families’ disposable income, to upper-income households.


  • Guest

    Forget who creates the jobs? people with more money…bingo….
    and when they are aloud to prosper, then there is a bigger base to tax..aka..more $$