Perry's flat tax plan: The rich make out

@CNNMoney October 31, 2011: 9:50 PM ET

The Perry flat tax will cut taxes for an estimated 41% of households compared to what they pay today. That jumps to 61% when compared to what they'd pay if the Bush tax cuts expire.

NEW YORK (CNNMoney) -- No matter how you slice it, the richest Americans would do better under Rick Perry's tax proposals, but the picture is more of a mixed bag for those on the lower rungs, according to an analysis released Monday by a nonpartisan tax research group.

More than 95% of the highest-income households would pay a lower tax bill under Perry's optional flat-tax system.

For instance, compared to what they're paying now, 98% of those making more than $1 million would see a tax cut and only 2% would see a tax increase.

"Virtually every rich person gets a tax cut and it's a big cut," said Roberton Williams, senior fellow at the Tax Policy Center, which conducted the analysis.

The tax plan unveiled last week by Perry -- a contender for the Republican presidential nomination -- would give taxpayers a choice. They could either pay what they would owe under the regular income tax system or pay what they would owe under Perry's optional 20% flat tax system.

The story for people making less than $100,000 is not as clear cut as it is for millionaires. Some would do better but more than half of households making $20,000 to $75,000 would see a tax increase.

Why is that? Because Perry's proposal assumes the Bush tax cuts expire. And under that scenario -- with or without an optional flat tax -- everyone would have a higher tax bill compared to what they pay now.

So then the question becomes: Would one do better under a system without the Bush tax cuts or under Perry's 20% flat tax?

Given that choice, the optional flat tax looks very appealing. Indeed, many would see a cut if they opted for the flat tax, according to the analysis.

The Perry campaign -- which says that once taxpayers opt for the flat tax, they wouldn't be allowed to go back to the regular system -- seemed to embrace the Tax Policy Center report in this regard.

Perry's simple tax not so simple

"This study confirms what Gov. Perry has said from the beginning, that American taxpayers in all income groups will be better off under his tax plan," the campaign's deputy press secretary said in an email to CNNMoney.

Under Perry's plan, families making $500,000 or less who choose the flat tax would get a $12,500 standard exemption for individuals and dependents -- so a family of four could exempt $50,000 of income from tax. And they also would be allowed to deduct mortgage interest, state and local taxes, and charitable contributions.

All capital gains and dividends would be tax free, Social Security benefits would no longer be taxable and the estate tax would be eliminated.

But there would be no other tax breaks. That's why the majority of low-income households would do better by opting to remain in the current income tax system.

Today's tax code offers them more tax breaks than Perry's flat tax, and those breaks are refundable, meaning eligible filers get paid the full amount of a tax credit even if it exceeds their income tax liability.

"The best you can do under Perry is pay nothing. The best you can do under today's system is get a check from the government," Williams said.

Overall, giving taxpayers a choice between the regular code and the flat tax would "dramatically" reduce the revenue paid into federal coffers, the Tax Policy Center estimates.

Williams did allow, however, that "the plan would lose less revenue over time because of its effects on economic growth." To top of page

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