On Tuesday Governor Rick Perry published his detailed economic plan, partly a response to Governor Romney’s 160-page plan (which will be the subject of a later entry), partly a response to Herman Cain’s much-vaunted but ill-conceived “9-9-9” tax plan, partly an overdue answer to a 2-month-old call for less sitting on his Texas record and more policy detail. Though Governor Perry’s economic plan comes in at just 24 pages, he now has offered far more policy commitments than Mr. Cain, whom we have for weeks breathlessly been told is a 1st-tier candidate. Most of the proposals seen herein come from old Republican wish lists, though they admittedly have never been seen in this exact combination before and have already won him endorsements from Steve Forbes and the implication of a future endorsement from the Club for Growth.
The priorities specified in Governor Perry’s economic plan place him in-line with the agenda of the House Republican Caucus; his plans for reform of the Federal Government place him to the right of Governor Romney but not radically-so. Some of his proposals, such as a Balanced-Budget Amendment to the Constitution, sound nice but would have a perverse effect on Federal budget priorities and the economy during a recession; in any case its passage by 2/3 of Congress or of the States and by 3/4 of the States in any event is implausible. Repeal of President Obama’s Health Care Reform is also implausible given that Republicans cannot hope to win a super-majority in the Senate in 2012 and some measures in the bill are certain to prove popular by full implementation in 2014; however, by executive orders and budget cuts with what may be a fully-Republican Congress, a President Perry could drastically reduce Federal spending, dismantle parts of the 2010 Health Care Reform, refuse to fund or enforce the Dodd-Frank financial reform, and completely block-grant both the Department of Education and Medicaid to the States. He has proposed “all of the above” reforms to make Social Security solvent, and amusingly, nothing in particular to fix Medicare. If you’re still reading, let’s dive right in.
Rick Perry’s Economic Plan:
Institute an optional 20% flat Federal income tax. All American wage-earners could simply opt to remain under the current graduated income tax structure with its myriad deductions, or switch to a simple 20% income tax with a few (but hefty) deductions. Perry’s otherwise flat income tax would maintain the deductions for charitable giving, mortgage interest, and State and local taxes. An interesting wrinkle: Those who switched to the 20% flat tax wouldn’t face taxation of their Social Security checks, a bizarre and regressive practice that began in 1983 when President Reagan and Congressional Democrats worked-out a compromise to address a far-greater solvency crisis Social Security faced at that time.
In an obvious swipe at Godfather’s Pizza executive and fellow Republican presidential hopeful Herman Cain’s “9-9-9” tax proposal, Perry insisted that he would not support a Federal sales tax or a value-added tax, arguing (as a recent study has shown with the Cain proposal) that a tax on the sale of consumer goods would result in disproportional higher taxes on the poor, who have to put a much larger share of their income towards purchases than the wealthy do.
Eliminate taxes on dividends and long-term capital gains. This measure would largely benefit the rich, particularly the rich employed in the financial sector whom are often compensated with stock rather than a salary due to the much lower capital gains tax rate. (Hence Warren Buffet’s recent indignant observation that he is taxed at a lower rate than his secretary.) It would of course also eliminate taxation on middle- and, where applicable, working-class investment as well, which would make it a bit easier for those with middling incomes to make money while encouraging investment; this would also be the sort of reform needed to prepare for adding personal investment accounts to Social Security, a long-sought prize for the Republicans. This measure favors the investor class (Read: the rich whom are compensated through stock), and abets the institution of investment accounts through Social Security; I would think, as The Economist recently argued, a more-prudent reform would be the elimination of corporate income taxes rather than capital gains taxes. This would remove incentives for corporations to “offshore” their profits in foreign tax havens or to outsource so many jobs to avoid domestic operating costs; let the investors pay the taxes from their dividends much as they would from labor income, and let corporations make their siting and investment decisions knowing they will face no taxes from the Federal Government.
Eliminate the Federal Estate Tax. Here Governor Perry’s economic plan invokes an old Conservative grievance narrative:
“…The estate tax is paid by the recipients of an inheritance and is due within 9 months of a decedent’s death. If the heirs do not have sufficient cash, personal property and business assets must be sold to pay the tax. In the case of family business owners and farmers, the tax often exceeds the ability of the family to pay. These heirs are consequently forced to sell part, if not all, of their enterprise in order to pay the tax. Eliminating the death tax is necessary to protect family businesses, farms and jobs.” That sounds reasonable…but why eliminate the estate tax for all who are eligible? Why not identify business assets or simply raise the threshold at which the estate tax will apply? Why don’t Republican advocates of estate tax repeal ever distinguish the plight of the Rockefellers from that of Ma and Pa down on the farm?
Eliminate corporate tax loopholes while lowering the corporate income tax rate from (the nominal) 35% to 20%. While the “other Governors” have called for lowering the corporate tax rate to 25%, Governor Perry’s economic plan argues that most US competitor countries in the developed world have de facto corporate income tax rates of 20%, leading him to propose the same rate here.
Eliminate taxation of overseas corporate profits. I know Governor Perry wouldn’t want to describe this proposal this way, but this is what he is proposing. Current talk of a corporate income tax holiday for overseas profits got you feeling at all resentful? Perry proposes never taxing the repatriation of corporations’ overseas profits again. He calls this a conversion from a “worldwide system” of corporate taxation to a “territorial system,” and argues that US corporations would stop stashing cash assets in overseas tax havens and bring the money back home, facilitating the hiring of new workers. That wasn’t what happened in 2004, when the last corporate profit repatriation tax holiday was followed by significant net layoffs by the US companies repatriating the most money. This particular proposal just sounds like it would make it easier for corporations to outsource jobs. Now as then, repatriated profits could simply be passed on to shareholders; the corporations would have no intrinsic reason to hire more workers here since they can simply establish their physical plant in whichever country has the lowest overhead and easiest access to resources or labor, knowing they will only be taxed on profits once–in that business-friendly country.
Freeze new proposals for Federal regulations, unless the President deems their institution to be routine or essential to national security.
Audit all Federal regulations instituted since the beginning of 2008 to determine cost, efficacy and the extent of perverse consequences. Perry proposes repealing regulations that fail all 3 tests, reforming regulations that fail 1 or 2 of them, and maintaining those that pass all 3. With any such sweeping or complex reform proposal, more may be riding on the implementation than on the idea itself (which certainly sounds reasonable).
Include a 7-year sunset clause in all new Federal regulations, requiring Congressional study for their renewal. This sounds impractical, even burdensome, given the speed at which Perry’s plan notes Federal regulations have been written in the past.
Create a searchable online public database for the entire 165,000 pages of the Code of Federal Regulations. Now, this sounds like a very good idea.
Reform Social Security in line with Conservative principles. Rick Perry has a plan for Social Security–and it’s a bunch of stuff we’ve seen before, mostly proposed by Republicans. In keeping with his alarmist talk about Social Security, his economic plan characterizes the most-popular Federal program as “broken,” noting that “If no changes are made to the system, benefits will immediately be slashed by 23 percent in 2036 when the program officially runs out of money to fund promised benefits.” This is actually a less-serious fiscal crisis than the one Social Security faced in 1983 when President Reagan and a Democratic Congress reformed the program to maintain its solvency without resorting to radical experiments such as diverting the program’s payroll tax proceeds into personal investment accounts. Perry’s economic plan notes the most-basic problem facing both Social Security and Medicare: As life expectancies increase and birthrates stabilize, a larger proportion of our country’s population will be elderly than in the workforce, gradually forcing a smaller pool of workers to pay the payroll taxes going to a larger pool of program beneficiaries. Interestingly, Governor Perry has embraced 1 idea by former Vice President Al Gore–a “lockbox” prohibiting the use of Social Security’s payroll tax proceeds to fund other parts of the Federal Budget. As is typical of reform proposals for Medicare and Social Security, Perry proposes to leave the current benefit schedule intact for those 55-years-old and older. For those currently in the workforce or younger, they “deserve the opportunity to have ownership of their Social Security contributions, to seek a market rate of return if they so choose, and to leave their retirement savings to their dependents when they die.” I assume Governor Perry is simply proposing personal investment accounts for Social Security–the same thing George W. Bush proposed in 2005; but if he is proposing letting Americans claim their own payroll tax proceeds for investment in the stock market, that is something else entirely. Social Security is a redistributive program; current payroll tax proceeds are collected in aggregate to aggregate to be divided among current senior citizens. Perry’s proposal reads like it’s suggesting individualizing Social Security by an individuals’ payroll tax proceeds. If that is actually what he’s proposing, that would make Social Security more-regressive. Payroll taxes deduct 6.2% of the first $108,600 of an American’s income (and 6.2% from an employer for the value of the salary he or she pays out); now Governor Perry has (unless this is a case of confusing writing) proposed encouraging those most-inclined to invest (i.e., the affluent and educated) to pull their contribution out of Social Security. This should actually give Social Security a brush with another solvency problem, and it would give the poor who chose to avail themselves of this opportunity very little to invest. I think Governor Perry isn’t that foolish, and this is merely a poorly-worded section of the plan; otherwise, it will fail under scrutiny, and deservedly so. Perry also proposes raising the collection age for Social Security from the current 67. What would it rise to, 69 (Mitt Romney)? 70 (The Economist)? This is another well-known proposal for constraining Social Security and Medicare benefits, less-radical and more-predictable in its fiscal impact than the creation of private investment accounts. Perry proposes progressive indexing–an idea Governor Romney has previously proposed as a means of constraining Social Security and Medicare expenses. This would reduce the cost-of-living adjustments by which Social Security benefits are increased over time so that rich beneficiaries get a benefit that is indexed to general inflation, middle class beneficiaries would get a benefit calculated partly on the basis of inflation adjustments and partly by the traditional wage adjustment, and poor beneficiaries would get a benefit indexed to increase along with wages solely. (Perry’s plan estimates that wages typically grow more than 1% faster than inflation annually, suggesting that Social Security benefits have gradually become more-generous with time relative to the overall cost of living.) Governor Perry also proposes a plan–one introduced by Mr. Cain during the debates and which Governor Romney has actually previously attacked Governor Perry for advancing–that would allow State employees to follow the Galveston model. (Galveston, Texas withdrew its public employees from Federalized Social Security in 1981 and invested all of its payroll tax collection into a market-based pension plan; the rate of return for Galveston’s separate Social Security system for its public employees is higher, including a life insurance policy, and the plan is currently projected to be solvent.) In conclusion, Governor Perry does have a plan for Social Security…and it is to do everything that Vice President Gore, President George W. Bush, Governor Romney, and Mr. Cain wanted to do.
Block-grant Medicaid out to the States to reform as they please; do…uh, something with Medicare. Governor Perry also has a Medicaid plan: punt Medicaid to the States “using the 1996 welfare reform law as a model,” splitting the program into block grants and letting States expand–or contract–eligibility as they wish. Some States will probably expand benefits; others will contract them, thus expanding some of the holes in health care, already probably the most gap-ridden component of our social safety net. Governor Perry suggests that greater efficiency, better fit and greater program accountability will result from returning Medicaid funding without guidelines to the States; however, his discussion of Medicaid also suggests that its central sustainability problem is simply that too many people are on Medicaid. The Liberal Ironist would be interested to know what a President Perry would propose to do for those removed from the Medicaid rolls in the interest of program solvency–namely, the newly-uninsured. But that would be the “punt:” Considering that he is the proud Governor of a State where 1 in 4 residents are uninsured, his answer would probably be that life is tough and that activists should focus their efforts on the States, the “laboratories of democracy.” But a punt is a plan. and a Republican President and Congress elected in 2012 would unabashedly get the Federal Government out of the business of providing health care coverage for those of working age, period.
For Medicare, the fastest-growing and most-unsustainable of all Federal programs–Social Security’s long-term solvency outlook is positively simple compared to Medicare’s–the bold-talking Texas Governor proposes…talking about solutions. Really, his circumspection on this issue is quite funny considering the big push he makes on some other issues here. Governor Perry’s plan mentions the options of raising the eligibility age, progressive indexing of benefits, and either merging the cash value of Medicare benefits into Social Security–an idea proposed by a Conservative economist back in 2005–or else Paul Ryan’s (here unnamed) proposal to replace Medicare’s defined-benefits for health care with vouchers for the elderly to buy health insurance. Again, this is a awful idea, probably the most-harmful proposal in Congressman Ryan’s budget proposal from last spring. Congressman Ryan touted proposing a sustainable (though not balanced) budget by forcing senior citizens into a notorious health insurance market. Medicare’s vouchers in the Ryan plan would be indexed to general inflation, not inflation in the cost of health care; the Congressional Budget Office calculated that by 2030–just 8 years after Ryan proposed the conversion of Medicare into vouchers–Medicare would cover only about 32% of the typical 65-year-old’s health care expenses in contrast to the current 75%. This would mean the gutting of the program and would ultimately require some kind of frenzied legislative fix at a later date. It would be fiscally sustainable but neither politically- nor morally-sustainable. Republicans were incensed by the oft-repeated suggestion that Congressman Ryan had proposed pushing grandma off a cliff; since those 55 and older would be exempt from these changes, it would be fairer to say Congressman Ryan had proposed pushing mom and dad off a cliff at some point in the future.
“Repeal job-killing legislation.” I’ve put this heading in scare quotes because here, as with Republican proposals for Medicare, beauty really is in the eye of the beholder. Of course, 1st and foremost Governor Perry proposes repealing President Obama’s crowning accomplishment, his sweeping and aggressive March 2010 Health Care Reform. Apparently the Texas Governor celebrates the “right” of his citizens to walk the Earth without health insurance, to be booted from their parents’ health insurance plans at age 26, and to be denied claims to coverage explicitly-granted by their health insurance policies because their insurer finds their condition to be “pre-existing”–an absurd grounds for denial considering the subjectivity that frequently attends this judgment. (Governor Perry also asserts, as many Republicans strangely have in consternation, that President Obama’s Health Care Reform is bad because it cuts Medicare spending by $500 billion over the next decade. Deep cuts to Medicare spending are a bad thing when the Democrats do it? Talk about looking a gift horse in the mouth…) The plan also calls for repealing the 2010 Dodd-Frank financial reform legislation, because…well, this depends on what you’re willing to take on faith. Senator Chris Dodd (D-CT) and Congressman Barney Frank (D-MA) argue that by establishing criteria and protocols to determine when and how to bail-out large banks to prevent systemic risk to the credit market, the risk and cost of such bailouts will be greatly-reduced; Governor Perry argues herein that such bailouts are actually made more-likely and expensive. Hmmm…Well, we do know that the Dodd-Frank financial reform is the only new legislative regulation of investment banking and hedge funds that we’ve had since the 2008 Financial Crash; it looks like Governor Perry has found the way to vilify Wall Street’s largest banks while doing their bidding. Finally, Perry proposes repeal of Section 404 of the Sarbanes-Oxley Act, which requires publicly-traded companies to self-assess their own internal financial reporting procedures, as well as to provide an independent audit of their internal financial reporting. This apparently imposes a great cost burden on the smallest publicly-traded corporations. While criticizing Section 404’s “one-size-fits-all approach” to internal finances disclosure, Governor Perry proposes repealing rather than modifying it or offering exemptions to smaller corporations.
Balance the Federal Budget. My God–We will never be free of any idea, however-stupid. (You see?) Yes, it is scary that the Federal Budget is posting $trillion-plus annually right now; it is also scary that serious Republican presidential candidates such as Mitt Romney and Rick Perry can propose cutting $100 billion in Federal program spending while also calling for balancing the Federal Budget while cutting taxes further. Am I missing something? Where are we supposed to get the other $1 trillion in budget cuts in the meantime? Sure, this would be less of a problem if we could collect the income and corporate taxes attendant with normal levels of employment…but we’d still be posting deficits of hundreds of billions of dollars per year. No serious presidential candidate has proposed cutting that much spending–indeed, no presidential candidate has even specified where $100 billion in Federal spending cuts will come from. If Republicans don’t want Democrats to admonish them that they aren’t ready for that “adult conversation,” they shouldn’t base their campaigns on such blatantly self-contradictory budget proposals and then label themselves “straight-shooters” or “problem-solvers.” I am forced to conclude, as Ezra Klein previously suspected of Congressional Republicans who passed the “Cap, Cut and Balance” Constitutional Amendment proposal, that they only voted for it because they knew they didn’t have the political clout to get it passed. The alternative is to accept their veracity and to assume that they don’t grasp the difference between cutting $100 billion from the Federal Budget and cutting $1.1 trillion from the Federal Budget because they have “pledged” away their independent judgment to countenance any tax increase. As part of his plan to balance the budget, Governor Perry proposes restricting overall Federal spending to 18% of GDP, which he roughly estimates as the average annual proportion of GDP to go to the Federal Government in tax revenue since 1960. A balanced-budget amendment would be a very harmful imposition on our government in a recessionary context, as requiring the Federal Government to operate in the black during an economic contraction would require it to fire thousands of workers, eliminate services and maybe even raise taxes (“O cruel! O you gods!”) precisely at the moment economic activity is most-constrained. (That this might further undermine the economy acutely and unnecessarily seems not to have occurred to many advocates of a balanced Federal budget.) Preemptively attacking the idea of raising any taxes as part of a budget-balancing measure, Governor Perry asserts that “some inside the Beltway have advocated a so-called ‘balanced’ approach that would raise taxes on middle class families who are already struggling to pay their bills,” without naming anyone who has said that. President Obama hasn’t proposed raising taxes on the middle class, though in his pejorative use of the term “balanced” that is obviously the association he is aiming for. The only current advocate of tax increases on the middle class who comes to mind is Herman Cain, whose much-advertised “9-9-9” tax plan would, according to the Tax Policy Center’s calculations, raise taxes on about 84% of Americans while generally cutting them for the rich.
Cut Federal domestic discretionary spending by $100 billion for fiscal year 2014.
Establish automatic government shutdown protection. Governor Perry proposes automatically funding a following year’s Federal Budget at the same level as the previous year’s budget in the event that Congress and the President can’t reach an agreement on appropriations for the new fiscal year. This measure would make the Federal Government shutdown-proof. Interesting: Having proposed a presumed “fix” to our country’s current budgetary battles, a President Perry would want to dispose of our means of revisiting them.
Institute a permanent ban on earmarks. “Bonne chance.” Wait, I take that back: I actually just don’t want this to happen.
Confine Federal emergency spending to actual emergencies. Governor Perry proposes eliminating the George W. Bush-era practice of treating normal and predictable appropriations, such as those yearly budget request for the Iraq War, as “supplemental appropriations” that were never counted towards Federal spending levels or annual deficits; if such spending had been counted as part of the normal budget it would have been clear to anyone that George W. Bush was 1 of the biggest spenders among US Presidents. Apparently emergency appropriations would be allowed to exceed the Federal Government’s spending caps (which would mean the Federal Government would still borrow money on rare occasions), but these emergency appropriations would apparently be confined to disasters, war initiations and the like.
Establish pay-as-you-go budgeting to keep Federal spending in-line with the budget cap, and eliminate duplicative government programs or services when new government programs are created.
Freeze Federal civilian hiring and salary increases until the Federal budget is balanced. Ouch. Speaking of the perverse effects of “one-size-fits-all” and “top-down” policymaking, here Governor Perry just assumes away a potentially-immeasurable loss of talent to the Federal Government due to wage stagnation or the arbitrary elimination of Federal jobs that might be an asset. Does Governor Perry seriously propose a freeze on Federal civilian hiring for the entire course of a 2-term presidency?
Last, and perhaps least…
No more bailouts. While the Federal Government’s payments to banks through TARP was paid back with interest (thanks to Democratic Senators who passed compensation restrictions for accepting that money as a grant that the banks found intolerable), Governor Perry is sticking to a well-worn Republican story that the TARP money is a loss, arguing that taxpayers shouldn’t be fleeced again. His economic plan asserts that alternatives to TARP were available to avert a severe credit crunch, though he does not discuss any of these alternative policies. In any case, TARP–a huge success that turned an unfolding nightmare into a mere crisis, and ultimately paid for itself–has always been very-unpopular with the public for bailing-out those big, bad banks with taxpayer money. Rick Perry doesn’t want to be on the wrong side of that one. As a wise friend once said, “I am the leader of the people–and where they go, I will follow.”