Flat Tax, VAT Tax

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Paul Krugman with Rachel Maddow: Why The Flat Tax Is Wrong

Perry: Tax Cuts For All, Protect Social Security – And Privatize It

Rick Perry gave a major speech in South Carolina on Tuesday, laying out his “Cut, Balance and Grow” economic plan – the centerpiece of which is a tax reform proposal that would give people the choice of filing their taxes under the current code, or a 20% flat tax.

The political benefit of such a plan should be obvious: Allowing wealthier individuals to take a huge tax cut, while in theory not necessarily raising taxes on lower-income people who would not do as well under a flat tax, by at least giving them the legal option of paying a lower rate with more paperwork.

Perry also called for a drop in the corporate tax rate to 20%, while also eliminating loopholes. He would also not tax repatriated profits, if the taxes were already paid in the countries where the profits were earned. And, for a limited time, he would offer a reduced tax rate of 5.25% on repatriated earnings.

On Social Security, Perry appeared to give two contrary messages: To uphold the solvency of the program – and to allow young workers to divert funds away from it.

From the prepared remarks:

   Second, we will end the current pillaging of the Social Security Trust Fund by Washington politicians. Here is the hard truth: the trust fund is full of IOU’s, without a single dime of money left over from what workers have paid in. The politicians have borrowed against it for years. And in order to redeem the IOU’s in the fund, they will have to either raise taxes or cut spending on other programs to replenish it.

   Here is the other hard truth: if we don’t act, in 25 years benefits will be slashed 23 percent overnight. Protecting Social Security benefits begins with protecting the solvency of the fund, and stopping all current borrowing from the fund, just as we have done with the highway trust fund.

But this is then immediately followed by:

   The third principle of reform is to allow young workers to invest a portion of their payroll taxes into private accounts if they so choose.

   I am not naïve. I know this idea will be attacked. But a couple of facts are worth stating: one, the return on investment in Social Security is so small it is like an interest bearing savings account. Over the long-term, the markets generate a much higher yield.

   Second, opposition to this simple measure is based on a simple supposition: that the people are not smart enough to look out for themselves. The liberals think the American people cannot be trusted to safeguard even a portion of their own retirement dollars. It is time to end the nanny state and empower our people to exercise greater control over their money.

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