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Making Inequality Worse: Perry's Tax Plan

Earlier this week, Governor Rick Perry released a tax plan that would further shift the federal tax burden off the wealthy and on to the rest of us.

Tax plans that make inequality worse, of course, are hardly novel; it seems a new one emerges every few weeks from GOP circles or some conservative think tank. But Perry just happened to release his plan at the same time as the Congressional Budget Office published a new report [pdf] showing that the top 1 percent of earners "more than doubled their share of the nation’s income over the last three decades."

Looking at the numbers of the CBO report and the Perry plan side by side provides a vivid sense of what's wrong with our current political debate.

The CBO report found that the after-tax earnings of the top 1 percent grew by 275 percent, as the bottom 20 percent of earners saw only an 18 percent bump. Other findings:

. . . . government policy has become less redistributive since the late 1970s, doing less to reduce the concentration of income.

“The equalizing effect of federal taxes was smaller” in 2007 than in 1979, as “the composition of federal revenues shifted away from progressive income taxes to less-progressive payroll taxes,” the budget office said.

Also, it said, federal benefit payments are doing less to even out the distribution of income, as a growing share of benefits, like Social Security, goes to older Americans, regardless of their income.

As Bloomberg News noted, "[t]he income gap was exacerbated by a decrease in the share of so-called government transfer payments -- which include Social Security, Medicare, food stamps and unemployment insurance -- that were received by the poorest Americans."

Our tax code is now less effective at "mitigat[ing] pre-existing income inequality," as Brad Plumer puts it, than it was thirty years ago.

And what would a President Perry do about this problem? Make it worse.

In an attempt to demonstrate his intellectual heft, the Perry campaign released a flat tax plan that would let Americans choose between their existing income tax rate or a flat tax rate of 20 percent.

As Zachary Roth observes, this would "almost certainly lower taxes as a whole, because most of those who paid less under the flat 20 percent rate would switch to it, while those who paid more would stick with the current system." Tax Policy Center calculations show that very high income households across all file statuses would benefit from the Perry plan. For instance, a retired couple with an annual income of $722,060 could pay about $75,000 less under Perry's plan, while a working married couple with children making $31,000 would receive no bump at all under the plan.

Not only would lower income families get no break from Perry's plan, but the downsized government Perry envisions - he says he'd cap federal spending at 18 percent of GDP, or where it was in 1960 -- would mean deep cuts in programs that help those families.

It's become a truism that any plan put forth to lessen the burden on the wealthy and increase it on the poor will invariably be treated as courageous. Recall how the media hyped Paul Ryan's absurdist, Randian overhaul of the social safety net. In the same vein, the Perry camp has somewhat desperately characterized his flat tax as "bold," an odd way to describe something that would privatize Social Security and Medicare without balancing the budget.

It's hard to imagine a more damning indictment of what has become of, and may befall, the United States. Serious consideration is being given to a tax plan pilfered from Michele Bachmann that would lower Warren Buffett's taxes.