Richard Shiro, Associated Press
GRAY COURT, S.C. — Republican presidential candidate Rick Perry proposed dramatic tax and spending changes Tuesday, saying he would let Americans choose between a 20 percent flat tax and the current system, allow private Social Security accounts and slash government spending and regulation.
Perry, seeking to regain the momentum he enjoyed in late August, said his plan would significantly spur economic growth. But analysts from the left and right said he would need draconian federal budget cuts to avoid massive deficits.
In a pitch to conservatives, the Texas governor said his "Cut, Balance and Grow" plan was bolder than what his Republican rivals or President Barack Obama would do. His proposal calls for gradually increasing eligibility ages for Social Security and Medicare and for amending the Constitution to require balanced budgets.
"America is under a crushing burden of debt, and the president simply offers larger deficits and the politics of class division," Perry said in South Carolina, whose primary will follow early voting in Iowa and New Hampshire. "Others simply offer microwaved plans with warmed-over reforms based on current ingredients."
After weeks of calling Social Security a "Ponzi scheme," Perry proposed major changes to the program's funding and payouts. Benefits would not change for current and soon-to-be retirees. Eventually, however, the eligibility age would rise, and wealthier people would see reduced benefits.
Younger workers could steer some of their Social Security payroll taxes to private investment accounts, an idea President George W. Bush tried and failed to enact in 2005.
The heart of Perry's plan would reduce or eliminate an array of taxes. He would end taxes on Social Security benefits, estates, dividends and capital gains, which would most help upper-income people. He would lower the corporate income tax rate as well as the personal income tax rate for those who choose his 20 percent flat rate.
The top marginal tax rate on individual income is now 35 percent. It was 70 percent in the 1970s.
Perry's plan would let people exempt $12,500 of their income, plus $12,500 for each dependent, from taxation. He would keep popular deductions, such as those for mortgage interest, state taxes and charity gifts, for families making less than $500,000 a year.
Herman Cain was the first presidential candidate to propose a flat tax this year. He called for a 9 percent income tax rate — and no deductions for most people — along with a 9 percent sales tax.
By design, Perry's plan "must lose revenue" for the government, said Kevin Hassett, director of economic policy studies at the right-of-center American Enterprise Institute. To avoid higher deficits, Hassett said, the government would have to slash spending in ways not seen since the steep military drawdown after World War II.
Perry said federal spending is out of hand, and suggested such cuts are feasible. In the past, deep cuts have proven easier to pitch than to enact, no matter which party controls Congress and the White House.
Perry said his proposed deep cuts in tax rates and regulation would spur economic growth and thus generate significant new tax revenues. Economists and politicians have long debated the validity of such claims.
If Americans were allowed to choose between the current system and a 20 percent flat tax, several analysts said, the wealthy would get a big tax cut, and lower-income people would hardly be affected.
The Perry plan "hemorrhages revenue" for the government, said Chuck Marr, an economist at the liberal Center on Budget and Policy Priorities. "It's a massive tax cut for the richest people in the country," he said. But it would not demand higher taxes from middle- and low-income people, who would stick with the current tax code because they fare better under its progressive structure.
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