Our guest blogger is Seth Hanlon, director of fiscal reform for the Doing What Works project at the Center for American Progress Action Fund.
Republican presidential candidate Rick Perry released a tax plan this week that he and many media reports called a “20 percent flat tax.” But Perry’s new alternative tax scheme is hardly “flat.”
Leaving aside the fact that it is layered on top of the existing tax code, it establishes not one but two different tax rates: 20 percent for wages, and zero percent for investment income. Because capital gains and dividends would be sheltered from taxes under Perry’s plan, some of the wealthiest Americans would wind up paying nowhere near 20 percent overall.
In fact, billionaire Warren Buffett, who has lamented the fact that he currently pays only 11 percent of his adjusted gross income in federal income taxes, would pay as little as 0.2 percent under Perry’s plan.
Perry’s campaign has helpfully released a sample of the tax form that wealthy people would use under his plan. We’ve taken the liberty of filling out this form for four high-income Americans whose tax information is public: Buffett, Dick Cheney, Barack Obama, and Perry himself. By computing their tax bill using Perry’s sample tax form and the income reported on their most recent actual tax returns, we can calculate just how big a tax cut Perry is proposing to give them.
Here are the results [CLICK ON THE FORMS FOR A LARGER IMAGE]:
BUFFETT: Since the legendary investor receives most of his income from capital gains and dividends, Perry’s plan wipes out most of his already-low tax bill. Buffett reported $62,855,038 in income on last year’s tax return while receiving only $600,000 in compensation from Berkshire Hathaway and the Washington Post Co. (where he is a director). If, aside from that $600,000, all of his other income is from capital gains and dividends, Buffett’s effective federal income tax rate under the Perry plan would be a microscopic 0.2 percent. Buffett’s tax bill would be slashed from the $6.9 million he actually paid in 2010 to $120,000. (Even if Buffett had two-thirds of his income in the form of capital gains and dividends, the average for the richest 400 people in the country, he’d get a $2.7 million tax cut and pay a 6.8 percent effective rate.)
CHENEY: Former Vice President and Halliburton CEO Dick Cheney fares almost as well under Perry’s tax plan. Cheney reported $3.1 million in income on his 2007 tax return (the most recent available), including $2.1 million in dividends and capital gains. Since he’d only pay Perry’s 20 percent tax on his other income, his tax bill would be reduced by about two-thirds — a $387,000 cut. Cheney’s effective rate, which was 19.1 percent in 2007, would be 6.4 percent under Perry’s plan. Of course, this is probably fine with Cheney, since he believes that deficits don’t matter.
OBAMA: Even though President Obama has said that “people like me don’t need another tax cut,” Perry’s plan would give him a big one. The Obamas reported relatively little investment income on their most recent tax return. Still, they would get a $60,000 tax cut from Perry’s plan because they paid more than 20 percent on their other income ($1.8 million from the President’s salary, book sales, and other items). President Obama has proposed the polar opposite of Perry’s plan by suggesting the “Buffett rule,” which would ensure that millionaires can’t pay lower taxes than middle-class families.
PERRY: Perry himself would receive a tax cut of $6,310, based on the income reported on his most recent tax return. That would drop his effective rate from 18.6 percent to 15.8 percent. (If Perry has another large capital gain like he did from selling land in 2007, he’d benefit even more. Had his tax plan been in effect that year, the Perrys would have saved more than $150,000 in taxes on $1.1 million of income and paid a minuscule 3.8 percent effective rate.)
The bottom line: It’s pretty clear from crunching some numbers on his proposed tax form that Perry is not proposing a 20 percent flat tax (nor would a flat tax be a good idea in any event). Far from flat, Perry is proposing an upside-down tax that delivers more tax cuts for the wealthy on top of the ones they’ve already received in recent years — exploding the deficit and shifting a greater share of the tax burden onto the middle class.