Perry’s advisers estimate that these reforms could eliminate about 70 percent of the long-term unfunded liabilities for the major entitlement programs. And, since those liabilities represent the most serious threat to the long-term solvency of the United States, Cut, Balance, and Grow deserves to be placed alongside such credible fiscal-reform proposals as the Paul Ryan Roadmap and the Simpson-Bowles program. It won’t get us to balance, and its promise to keep federal spending and federal revenues matched at or below 18 percent of GDP is impossible to guarantee and probably impossible to enforce, even with a constitutional amendment. But if a Republican president is elected in 2012 and the only thing he accomplishes is significant entitlement reform, he will have done well.
The “Cut” part of the agenda is twofold: There are spending cuts — at least misty promises of spending cuts — and there are tax cuts. Governor Perry here is clearly operating under Jude Wanniski’s “Two Santa Claus Theory,” which holds that Republicans can succeed in the great contest to bribe the public with its own money by offering tax cuts in the same way that Democrats offer spending increases: a little something for you, and a little something for you, and a little something for you, based on a political list of who’s been naughty and nice. Governor Perry would create a 20 percent flat-tax option on top of the existing brackets, meaning that taxpayers could file under the current law or choose the flat tax. It is not clear for whose benefit this is intended. The poorest American households pay an average effective federal income-tax rate of nada (in fact about negative 7 percent, once the earned-income tax credit and the like are accounted for) while the wealthiest households pay about 14 percent on average, and the all-household average rate is about 9.3 percent, according to the Congressional Budget Office. Perry’s plan would phase out most of the exemptions and deductions — mortgage interest, local taxes, charitable giving, etc. — for households earning more than $500,000, so it is conceivable that some of those taxpayers might benefit from the 20 percent option. Most taxpayers will be better off staying where they are.