When Gov. Rick Perry was told that his radical tax plan would be a huge windfall for the rich, he said, “I don’t care about that.”
How voters will react remains to be seen.
Gov. Perry proposed a flat 20 percent tax on personal and corporate income — down from top rates of 35 percent in each case. He also would repeal the taxes on dividends, estates and long term capital gains. He would maintain popular deductions for families making less than $500,000 a year and eliminate taxes on Social Security income.
Taxpayers would have the option of sticking with their present rate. The standard deduction would increase to $12,500 for individuals and their dependents, so a family of four would pay no income tax if they earned $50,000 or less.
Federal spending would be capped at 18 percent of the gross national income, allowing the budget to be balanced by 2020. Social Security would be changed to a system of individual retirement accounts eventually.
Perry put his plan together with the help of Steve Forbes, the multi-millionaire who proposed a flat tax of 17 percent when he ran for the Republican nomination in 1996 — and was soundly trounced. Forbes finds Perry’s plan “exciting.”
By the time this appears, budget experts will have run the Perry plan through their models and will be able to report how it would affect each earner group. Administration spokesmen predictably said it would shift the tax burden to the middle class.
As outlined by the governor, it almost certainly would bring in far less income and push the deficit far higher.
Gov. Perry says he doesn’t care how much richer his plan would make the rich. What he cares about, he says, is leaving dollars with the rich so they can invest them in job-creating businesses.
There is one big hole in this theory: investors don’t create businesses unless there is a market for what those businesses would produce. One of the anomalies in today’s recession is that U.S. corporations are sitting on hordes of cash, which they are not investing in expansion of their businesses or in purchasing other businesses. They are not hiring because there is no market for what additional workers would produce.
Gov. Perry believes that letting the very rich, who already control 40 percent of the nation’s wealth, get even richer would “put America back to work again” by increasing the amount of money in private hands, which would be available to expand the economy.
The way to test this theory is to discover how many jobs these “job-creators” are now creating. The current tax structure has allowed them to amass immense fortunes. It is reasonable to suppose that Warren Buffett, et al, have created all of the jobs that they thought it wise to create.
In sum, business is slow because the demand for goods and services is being met and is not rising fast enough to tempt entrepreneurs to invest.

THERE IS ANOTHER glaring weakness in the Perry plan. Capping federal spending at 18 percent of GNP would require very large reductions in federal spending. Before you burst into cheers, consider: every federal dollar “saved” is a dollar taken out of the economy. Taking dollars out of the economy reduces demand for goods and services, which kills jobs. Because tax revenues at the state and local level have dropped, state and local governments have reduced their work forces by about 400,000 in the past few years. That is one of the consequences of smaller government.
Let it also be recognized that repealing taxes on dividends, inheritances and long term capital gains are all gifts to the upper 5 percent of today’s families. The wealthy own almost all of the dividend-producing stocks that are not owned by pension plans of one variety or another. The inheritance tax today only applies to estates above $3.5 million. The Allen Countians who would pay the tax if their folks died tomorrow would fit comfortably into almost any of that cohort’s living rooms. Long-term capital gains affect those who pile up wealth in the form of stocks and real estate. That’s why they are called Mr. and Mrs. Gotrocks. It is specious to argue that they would go out and start job-creating businesses if they didn’t have to pay taxes on the gains they realized from a sale.
Mr. Perry said in answer to a direct question that he did not believe in the progressive income tax that has been in place since before World War I (when the top rate rose to over 70 percent) and was in the 70s in the Great Depression. He doesn’t think that the ability to pay should be a factor in setting tax rates.
Buy Mr. Texas and that’s what you’ll get.

— Emerson Lynn, jr.

More good news from the Middle East. Millions of Tunisians cast votes Sunday for a new legislative assembly that will write a constitution; a constitution that Tunisians expect to give them a government responsive to the people.
“Tunisians showed the world how to make a peaceful revolution without icons, without ideology, and now we are going to show the world how we can build a real democracy,” Moncef Marzouki, founder of a liberal political party and a former dissident exile, told  David Kirkpatrick of the New York Times.
“This will have a real impact on places like Libya and Egypt and Syria, after the fall of its regime,” he added.
It is too early for celebration. But the fact that millions — out of a population of less than 11 million, 25 percent of whom are illiterate — voted is enough by itself to guarantee that Tunisia is one Arab nation that won’t fall back into a dictatorship any time soon. Whether it can build a Western-style democracy based on Muslim religion and philosophy is more problematic. That is, however, the goal of leaders such as Marzouki.
The Tunisians who waited patiently in long lines to vote also said they wanted and expect to have political freedom and to break out of the bleak poverty which afflicts so large a percentage of the population, a goal that can be reached only through a stem-to-stern reordering of Tunisia’s society and economy.
Mr. Marzouki’s great-grandchildren may look back at 2011 and tell the children at their knee that the Arab Spring was real; that it started when Tunisia ousted their despotic ruler, Zine el-Abidine Ben Ali in January of that year, created its own democracy and began the arduous journey from that revolutionary beginning to the day when a prosperous, stable, freedom-loving Tunisia was finally built.

— Emerson Lynn, jr.

Defense Secretary Leon Panetta worries that the 12-member deficit reduction committee won’t be able to write a formula to cut government spending that can pass Congress and win the president’s signature. If it does not, then across-the-board cuts will go into effect.
Sec. Panetta has pledged to cut $450 billion from the Pentagon over the next 10 years. If no deal is reached by Thanksgiving and all federal spending must be cut by a set percentage, he will be faced with an additional $500 billion reduction.
He argues that trimming the Pentagon back by $1 trillion — $10 billion a year — would gravely weaken U.S. military capacity, putting domestic security at risk along with the capacity to fight the wars against terrorism abroad that almost certainly will arise over the decade.
After 10 years of war in Afghanistan and eight in Iraq, the military needs rearming and retraining for the new types of warfare they have evolved. In addition, China’s growth as a military power has put pressure on the U.S. to beef up its Pacific forces at great expense.
Deep cuts in defense spending would also destroy jobs and corporate profits in almost every state in the union at a time when the biggest challenge facing this administration is putting people back to work and maintaining federal revenue.
If anyone does, Panetta has the skills it takes to prevent this budget disaster. His top-level federal service started under President Lyndon B. Johnson. He has been civil rights chief, congressman, budget director, White House chief of staff, and moved into his present job from heading the CIA. He was approved for this cabinet position by a 100-O vote in the Senate.
He will be able to make a powerful case to the deficit committee to come up with a combination of spending cuts and revenue increases that can pass Congress and win the president’s approval.
But if reason fails — as it has time after time in this divided government — and the committee defeats itself, Panetta and his allies will go to Congress and ask for a second opinion.
Panetta and friends will tell Congress how the cow ate the cabbage. The country, they will say, can’t afford to shoot itself in the foot with draconian defense cuts. It can’t afford to make itself a second-class military power; it can’t afford to weaken homeland security; it can’t afford to throw hundreds of thousands of Pentagon employees and defense industry employees out on the streets.
Besides, there is no more stupid way to cut federal spending than with an across-the-board meat ax that depends on the moronic assumption that all federal spending, from studying the sex life of miller moths to feeding the troops, is of equal importance to the nation.
Sec. Panetta is a man of colorful language. He will put the case in even plainer words.
In any case, he can be depended on to win the Pentagon budget battle this year or next. He will win because he will be right and his opponents will only be partisan.

— Emerson Lynn, jr.