Monday, October 24, 2011

Rick Perry Set to Propose Flat Tax

Governor Rick Perry has officially stepped up to the plate and proposed a conservative dream as part of his economic plan: the Flat Tax.  In a time where 9-9-9 is gaining traction in the marketplace, Perry's Flat Tax could also take off just as fast.

I've been a longtime proponent of the Flat Tax.  I believe it is not only the fairest possible tax but also the most Biblical tax available. When I published my Treatise on Biblical Conservatism in August, I noted that, in the original government God set up for Israel, there were two taxes.  A one amount for all Temple Tax and the Tithe, a 10% tax on all people.

Now Governor Perry is proposing the Flat Tax.  You have my attention, sir. The plan has not been officially presented, however, we can get some insight on what the plan would based largely on Steve Forbes' Flat Tax proposal from his two Presidential runs in the 1996 and 2000.

So what would this Flat Tax be, assuming Perry sticks to Forbes' plan?  I'm glad you asked.  A Flat Tax Rate of 17%, across the board, for all Americans, with every penny up to $36,000  being completely tax exempt.  You read that right.  Not one penny in Federal tax would be paid up to $36,000 for an American family. (1)  So starting from that base, an American family making the median income of about  $44,389 per year (2), lets examine what that family consisting of two parents and two children would be paying in taxes:

First and foremost, the first $36,000 in income would be tax free.  So let's remove that amount, giving you a taxable income of only $8389.  Yep, just over eight grand in taxable income. That American family would pay only $1426.13 in total income tax that year.  That makes for an effective tax rate of 3.21% for an American family making the median income. 

Now under the current system, that same American family would be in the 15% tax bracket.  They would receive a total of $2000 tax credit because of the two children in that family. Let's again say that the same American family can deduct an average of $1,227 per year in mortage interest (3) and say another 5% of their income in other, assorted deductions (charitable donations, etc) which would equal $2219.45 in additional deductions for a total of $5446.45 in total deductions.   So that means their taxable income on that income is $38,942.55 in taxable income  That means that family would pay $5841.39 in taxes.  That's an effective tax rate of 13.16% for an American family making the median income.

The difference is $4415.26 MORE MONEY under the Flat Tax in the pockets annually of the average American family.  In terms of total dollars, that family would be paying just over 1/4 of the taxes they are currently paying.  It's an extra $367 each month for that family.  Over five years, that money could buy that family a brand new car.  It's a huge amount more money in each American family's pockets each year.

Governor Perry, you were losing ground in my mind.  Go this direction, you have my attention.  The Flat Tax is the dream of conservatives. 

(1) Summary of Steve Forbes' Flat Tax Plan

(2) Wikipedia: Household Income in the United States - Median Income

(3) Scrap the mortgage deduction? Americans weigh in

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