You can read Perry’s economic plan by clicking here.

A request by Rodan.

When reading Rick Perry’s economic plan, it may seem very familiar to you. That’s because it is. For anyone who doubts Perry’s conservative bona fides, a review of this plan should immediately alleviate those fears. This plan is a comprehensive list of the very things we free marketeers have been saying for years. It is also very similar to what has been offered both by Newt Gingrich and Herman Cain. Right off the bat here are my main impressions of the plan, the highlights so to speak. Perry introduces his idea for a flat tax, proposes balancing the budget by statute and by cutting spending. He seeks to eliminate special tax breaks for behaviors approved by government, and a massive roll back of onerous regulation inflicted by a bloated Executive Branch. You may recall that yesterday I came out in favor of Newt Gingrich based on his 21st Century Contract With America, but I also hedged somewhat by stating that any of the Gingrich, Perry, Cain trio would be O.K. with me. With that in mind, I will give Perry’s plan an overall grade of A-. There is room for improvement, but all in all, it is Red Meat for us Conservatives.

TAXATION

Perry starts out by pointing to a little talked about government statistic.  It costs American Taxpayers $483 Billion per year to comply legally with our current tax code.  Remember that figure for later, it will be important.  If you log onto the IRS website, you will see an estimation from the IRS as to what percentage of Americans who pay taxes, in fact overpay.  This percentage usually hovers around 90%.  According to the IRS’ taxpayer advocate in testimony before congress, this is due to the fact that the tax code has become too complicated for even the IRS to follow anymore.

Personal story:
Last year, I called a CPA on behalf of a client.  I asked about a specific deduction a client wished to take.  The CPA gave me a negative response, saying, “that’s ridiculous.”   The client pressed on, so I called the IRS help line.  The IRS told me sure, the deduction is good, and here is the publication that I found that info in.  I called the CPA back, feeling somewhat not confident in the info, first being conflicted, and also the IRS’ own disclaimer about their answers not being guaranteed.  As it happens, they were both wrong.  The CPA, graciously followed up by reading the entire publication and not just the first paragraph, or even only the first sentence as I suspect.  As it happens the deduction was allowed, but with very severe caveats.  The client was not Warren Buffett, but an average American tax paying citizen.

Why does this happen? Over the last decade, there have been 4428 changes in the tax code.  There will be 350 changes for 2012.  60% of Americans employ the help of paid professionals to file their personal returns.  One mistake Perry makes here is one that I have noticed personally.  Many of the professionals hired have no actual training or expertise in tax law or preparation.  There are a lot of people who operate tax preparation businesses with no more expertise than the software they purchased at their local book store.  While I do not wish to disparage the fine software products being sold,  It is not the same as paying for the services of a CPA or an Enrolled Agent.

Perry also points out that the Average Corporate Rate paid in the United States is the second highest rate of any industrialized nation.  While most of the other industrialized nations around the globe are lowering their rate of confiscation, our government is seeking to increase our corporate tax rates.  Perry has also done his homework and refers to a graph originally produced by Art Laffer.  In this particular chart, Laffer pointed to the past, and noticed that no matter what tinkering occurred with the tax code, revenues were consistently around 18% of GDP.  Fluctuations in tax rates only served to affect GDP in the long term, while increases or decreases in revenue were only affected by increases or decreases in GDP.

The basic reason for this is something the political left will never be able to comprehend, and when they do get it, will always revert to attempts to force the issue through increased government oppression.  The universal truth is that people will alter their behaviors.  Rick Perry obviously gets this.  This is why a Democratic Socialist State will invariably become a Totalitarian Socialist State.  If our tax rates are increasing on our corporations while other industrialized nations are decreasing theirs, any corporation who can afford to, will at least consider doing business elsewhere.  Individuals will also adjust their behavior, by not investing capital that would otherwise be used to produce economic growth or create jobs.

anecdotal question:
How hard do you personally need to work in order to earn $1000 that is free and clear of any bills which are needed to maintain your lifestyle.  If a person knocked on your door and told of his great business plan, and you can make money by investing your $1000, what return would you expect for that $1000?  Would you be happy with getting your original investment back only, or would you expect to make more than that back?  How would the government’s self proclaimed ability to take a portion of your earnings affect your decision?  At some point, if you are a prudent person with your own finances, you might very possibly decide to keep your $1000 rather than investing it.

What Perry proposes, as if it were a shock to anyone at this point is a flat tax.  He uses the previous proposal pushed by Steve Forbes during the 80’s.  His program would allow for certain deductions, but few enough of those to, “keep the return the size of a postcard.”  He argues against a national sales tax, which is also something that I am personally against.  A national sales tax has been employed by 10 other industrialized nations, and in 9 of those, the percentage taken has increased already.  A national sales tax also has the ability to embed extra hidden costs by layering taxation during several different stops along the product manufacture and distribution cycle.  In practice, it has not worked out well for those nations that put it into place.  Perry’s plan also calls for a corporate rate that is flat.  He places the corporate rate at the average of the other industrialized nations, 20%.  His flat tax is designed to keep us on pace exactly with Laffer’s graph referred to above.

My biggest problem with the Perry tax policy is the caveat of allowing people to opt out in favor of choosing the current structure in place.  I understand his reasoning that people made investment decisions based on the old system and would face undue costs by losing those benefits afforded under the old system, but there is another way to handle that, and it is called a grandfather clause.  Going forward, we all should be playing by the same rules.  The flat tax would do something else for us, it would give the 47% of Americans who do not pay any taxes at the federal level skin in the game.  Clamoring for an increasing supply of gifts from a benevolent federal big brother will take on a whole new meaning when the recipients are forced to pay something for it also.  We should all have a stake in the game, and not have half of the country be supported by the other half.  It won’t be long before the working half realizes it is more fun to receive than to give.

Perry seeks to end taxation of passive income, dividends and capital gains.  This would certainly spur investment in our country that would give an instant boost to employment and economic growth.  Personally, I feel that there is no reason to drop this to zero, but it would have a positive effect.  Dropping those rates to 10% would give a very similar boost, while allowing the people who make money by investing and not working for a wage to also have skin in the game.  (I can see no reason to allow Warren Buffett to pay zero in taxation.)  The Perry plan would eliminate the inheritance tax, which is money that has been taxed once already.  Taxation of estates is nothing more than the Federal Government’s attempt to re-confiscate the earnings of successful people rather than allowing that to be passed on in accordance with the wishes of the deceased.  The wealthy in our country are able to manipulate the laws via trusts, foundations and insurance plans anyhow, so in the end, it is only the middle class which ends up paying this bill.

Perry advocates the cessation of tax credits for approved behaviors.  Every liberal friend I had jumped for joy at the concept of government subsidy for green technology.  They all told me with pride that it was about time that we broke the oppressive hold over us by the evil oil companies.  Then, when GE took advantage of the program by forcing those stupid cfl light bulbs upon us and building those Windmills which now dot our landscape, they cried like babies that a fortune 500 company was able to make a huge public sponsored profit while avoiding all taxes.  Again, a flat rate of 20% with no deductions, ie, loopholes.

Perhaps the best part of the Perry tax plan will be the least talked about.  Repatriation of American funds.  It will seem counter intuitive, but I will try to do it justice anyhow.  Currently, when an American company operates over seas, they will pay taxes on their income at the foreign rates first, and our government then charges an income tax at American rates to repatriate that money back to America.  This has the effect of discouraging businesses from bringing money back.  Capital is then invested in foreign nations for new factories, job creation, etc.  Currently, only enough money will ever be brought back to pay what ever dividends will be necessary to keep shareholders from getting angry.  For those of you with longer memories, George Bush did this in 2003 and in 2004.  The result was that when John Kerry went around the country screaming about how Bush had the worst record on jobs since the great depression, it was no longer true by the time of the 2004 election.  Perry seeks to make this a permanent change.

REGULATION

Our Executive Branch has added 38,710 new regulations over the last decade.  These new regulations are contained in 628,100 pages of print so fine that even pilots will need a magnifying glass to read it.  Only 10% of these regulations are reviewed or audited by anyone at all.  That means that 34,839 new government regulations contained in 565,290 unreadable pages have been added to our regulatory labyrinth without anyone voting on it, or any consideration beyond the bureaucrat who decided upon that rule arbitrarily.  The cost of compliance for our regulatory structure in the United States today stands at $1.1 Trillion  Couple this with the cost of compliance to our tax code, and you have a compliance cost in this country of $1.6 Trillion.  Does that figure sound familiar, like say an amount equal to our annual budget deficit, maybe a little more.  I am not advocating for an elimination of all federal regulations, and neither is Rick Perry.  When the regulations are being added to our structure without so much as a second opinion however, clearly a line of common sense has been passed.  To illustrate just how egregious it has become, farmers are now responsible to spend a fortune on milk spill prevention and cleanup programs.  It appears that the EPA has declared milk to be a dangerous substance and errant farmers have been endangering the public by not developing programs to deal with the possibility of large quantities of milk being spilled ruining the environment.  You may have noticed a sharp increase in your costs of milk at the grocery store, and now you know why.  When the Perry Campaign requested a list of Federal Regulations which carried a possible penalty of prison time, the Congressional Research Service responded the the request represented a task that was so onerous and time consuming that they could not possible be expected to actually complete the task.  The list would be impossible to compile under any standard.  For an independent business owner anywhere in America, what chance would they have to make their way through this maze of possible pitfalls?

The result of all of this is far more onerous for small businesses than those who can employ legal teams and accountants in house.

From the graph above, what you see is that the cost of compliance costs small business owners an average of 44.77% more per employer than his larger competitors. When Dodd-Frank was instituted for example to make certain that we would never again fall victim to the too big to fail trap, its result was in fact opposite to that intention. To add insult to injury, this law even exempted the two primary entities that created the fiasco which spurred on its passage in the first place. Fannie Mae and Freddie Mac have in fact re-instituted the very same practices which caused the financial collapse to begin with. And why shouldn’t they. According to law, the government has declared them exempt once again from the consequences of poor risk analysis. They have nothing to lose and everything to gain. The price will be paid by the smaller entities of the financial system, Dodd-Frank has made certain of that.

Perry’s plan would force every current regulation through a review process and prevent all further additions of regulation from occurring until that process has been completed. Each regulation will be forced to be justified by stringent criteria, including a cost benefit analysis. Regulations which can not pass the test will be canceled completely. Some that partially pass, but not every aspect of the criteria process will be rewritten and or simplified. All regulatory agencies will be given a specific budget to work within, and funding will be cut off once those funds are exhausted. Currently, these agencies, by statute have no limitations on their expenditures. (And you wonder why we are in a fiscal mess.) Perry also calls for a searchable database where every American would be able to easily identify what the rules are.

SOCIAL SECURITY

Rick Perry took a lot of heat for, and I can not stress this enough, correctly calling Social Security a Ponzi Scheme. So, for a bit of snark in an otherwise wonkish analysis, enjoy Steven Crowder reporting the Social Security Administration to the SEC.

Perry states his goal to be repairing the system, which will collapse without some one taking immediate steps to prevent this from happening. Whether you agree with his language or not, the fact remains that he is in fact quite correct in his analysis. His proposals are also nothing new. Gradual increases in the age of retirement phased in according to increased life expectancy, Giving private control over our own individual accounts based upon the choice of each citizen, (he refers to the very successful Chilean model for this, which George W. Bush was roundly vilified for.) He also proposes making it illegal for the system to be robbed for other government uses, such as highway funding, or a model cities program, (two previous uses for raiding the social security fund.)

MEDICARE AND MEDICAID

He proposes similar steps to be made with respect to Meicare and Medicaid. He also includes placing the responsibility for these programs back with the states. The interesting thing here is that he in effect uses the exact same argument made by Romney when he was defending his Romneycare program. Many people have been beating Romney up, and deservedly so, over his Romney care law, but in actuality, there is a difference between putting that into place at the state level and making it a national program. With respect to that specific argument, Romney is right.

SPECIFIC REPEAL

Dodd-Frank. As stated previously this will have the exact opposite affect from what its purported purpose is.

Sarbanes-Oxley. Requires duplicate audits of a company’s books. All public corporations were previously required to audit their own books, and have an independent auditor assess the companies reports and speak to their validity. This wasteful regulation forces a third audit to be performed by the company to audit the audited report of themselves. It in a nutshell would prevent zero crime from occurring, as anyone crooked enough to cook their own books, take the time to sneak it past an independent auditor would not then tell on themselves in a third round of paperwork. What this idiotic piece of legislation does do however is cost a hell of a lot of money to enforce. It also has the added benefit of preventing smaller privately held businesses from going public and possibly expanding.

Obama Care. Go to the search engine of this blog and type in, “finding out what’s in it.” I believe that I am up to 12 now. Suffice it to say, I am against Obamacare, and yes, I realize that I have only scratched the surface.

BUDGET

He proposes to balance the budget by cutting spending. Perry recognizes that our budgetary problems are related to spending and spending alone. He proposes an end to Baseline Budgeting, that Carter era law which requires that our national leaders ignore reality when drafting a budget. In this world of the Congress Critter, increases in tax rates are scored by the CBO as revenue increases even though history has thoroughly debunked that myth many times over. The law also forces the calculation for the opposite assumption. It also forces the CBO to include an automatic growth for all budget items which is in fact greater than prevailing inflation rates, as well as holding that even implied expenditures be included for calculations involving future savings or deficits. So, all of this serves to give us a picture that starts off being deceptive, and that is before any politician has the ability to lend their spin. I give Perry high marks for taking on this issue.

He also advocates the repeal of Davis-Bacon which prevents the Federal Government from seeking competitive bids for contracted work on federal projects. I also agree with this. He proposes the end to continuing resolutions being used to circumvent the budgetary process. I agree with this as well. The idea that a budget will be imposed upon our nation with out the signature of our chief executive is preposterous. Putting a stop on budgetary items being stealthily passed by using the emergency budget provisions for things that are not emergencies but merely items for which no one is willing to face accountability, will be accomplished by defining emergency.

Ending bailouts, ending earmarks, hiring freezes and paygo with a twist round out his budgetary proposals. Perry was able to find duplicate regulatory oversight in some instances as many as 34 different agencies watching the same lucky group of people. I am not sure, but I bet a national regulatory database would be able to find these wastes, and help us to end them.

Cross Posted at Musings of a Mad Conservative.