CATHERINE RAMPELL

Dollars to doughnuts.

Gov. Rick Perry’s proposal for an opt-in flat tax would primarily benefit the wealthiest Americans, according to a new analysis from the Tax Policy Center, a nonpartisan research organization. Compared with current tax policy, the plan would most likely reduce federal tax revenue by $570 billion, or about 15 percent.

The plan, released last week as part of Mr. Perry’s campaign for the Republican presidential nomination, allows taxpayers to calculate their personal income taxes under the existing tax code, which is progressive. But it also allows taxpayers to instead have their income taxed at a flat 20 percent rate. In this alternative system, long-term capital gains, qualified dividends and Social Security benefits would not be taxed, and only a handful of deductions would be allowed. Once a household chooses the new system, it cannot switch back.

Because no one would be forced to use the alternate system, Mr. Perry has said, no one would have to pay higher taxes (at least initially; presumably if a family’s income changes a few years after entering the plan, it may no longer be advantageous). Even so, the greatest beneficiaries of the flat-tax option — that is, the households that would be most likely to switch to this system — are far and away the highest earners:

Of all households in the bottom quintile of the tax distribution, only 18.9 percent would pay less in taxes under the Perry plan.

Meanwhile, 83.3 percent of households in the top quintile would get a tax cut. Closer inspection shows that almost every household in the top 1 percent would be offered a tax cut.

The size of the typical tax cut is also much larger for the richest households, both in raw numbers and as a share of that household’s income. For households in the top 0.1 percent, for example, after-tax income would rise by 27.4 percent. If every American household, however, chose the flat-tax system, after-tax incomes across the country would increase by an average of just 5.3 percent.

In addition to changes to individual income taxes, the Perry plan would also reduce the corporate income tax rate to 20 percent from 35 percent; allow companies to expense all investment purchases immediately; make any income that American companies earn abroad exempt from United States federal taxes; and repeal the federal estate taxes and various taxes contained in the Affordable Care Act.

The Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, has also created tables showing tax cuts by dollar income (as opposed to percentile) and how families with different marital structures and varying numbers of children would most likely be affected.

Article source: http://feeds.nytimes.com/click.phdo?i=bdda9859823523b55802b52a373c2d52