The Corner

The Fiscal Impact of Perry’s Flat-Tax Plan

A lot of people are wondering: Given that Rick Perry’s flat-tax plan would effectively lower tax rates for nearly every American, what will it do to the budget deficit? We have at least one initial answer to that question.

The Perry campaign has enlisted economist John Dunham to estimate the fiscal impact of the governor’s new tax plan. According to Dunham’s analysis, a CBO-style “static analysis” of the tax plan will yield revenues $588.9 billion lower than “those currently assumed in the Congressional Budget Office’s forecasts,” with total revenues equaling 18.1 percent of GDP.

Using a dynamic scoring system that makes more optimistic assumptions of the plan’s impact on economic growth, revenues would be $406.8 billion higher than the CBO baseline, amounting to 19.5 percent of GDP.

I’ve posted the seven-page analysis here.

I’ve also published my thoughts on the health policy aspects of Perry’s plan on my Forbes blog. Overall, I pretty much agree with what Yuval says below. Here’s what I wrote yesterday about Perry’s Medicare reform proposal:

On a conference call this morning, members of Perry’s domestic policy team explained that they are deciding between three approaches to Medicare reform: Paul Ryan’s Path to Prosperity, which was incorporated into the 2012 House budget; Jim DeMint’s Retirement Freedom Act, which would allow seniors to opt out of Medicare and obtain private insurance; and the bipartisan reform proposal put forth by Sens. Tom Coburn (R., Okla.) and Joe Lieberman (I., Conn.), which preserves traditional Medicare but reforms the program’s cost-sharing, means-testing, and eligibility-age features.

The three aren’t incompatible with each other; one could easily incorporate the Coburn-Lieberman plan into Paul Ryan’s framework. The DeMint proposal that allows seniors to opt out of Medicare is attractive philosophically, though it will be important to consider the adverse-selection issues associated with such a plan: healthy people are the ones most likely to opt out, leaving the sickest and most expensive patients on the government rolls.

I spoke with the Perry domestic team this morning to ask how they were planning to choose between these three plans. The idea appears to be not to choose among the plans, but rather to lay out “principles, goals, and guidelines” that can be used to work with Congress to formulate a bill.

While Perry’s Medicare plan is not fully formed, it is more specific than those put out by his competitors. It will be interesting to see where it goes.

Avik RoyMr. Roy, the president of the Foundation for Research on Equal Opportunity, is a former policy adviser to Mitt Romney, Rick Perry, and Marco Rubio.