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![handle is hein.taxfoundation/iretbyln0107 and id is 1 raw text is: October 9, 1992 No. 107
Perot's Polyglot Proposals
The Perot economic revitalization program,
United We Stand: How We Can Take Back Our
Country, has received too much hype and too little
scrutiny. It is subtitled A Plan For The 21st
Century, and is thereby some twenty times as
presumptive as the five-year plans
forward by most of the formerly-
planned economies. The program
gives the impression of being
judgmental but uninformed, not
merely eclectic but incoherent. If
there is one central theme, it is that
individuals and markets are slighted
in favor of corporate power and
government-directed activity.
traditionally put
IET!
Bln
The [Perot] program gives
the impression of being
judgmental but
uninformed, not merely
eclectic but incoherent. If
there is one central theme,
it is that individuals and
The Perot plan concentrates on markets ar
deficit reduction by both spending favor of co
cuts and tax increases. Tax and
spending changes affect the and gover
economy differently. Spending activity.
cuts release federally-controlled or
directed resources that may then be
used to expand private economic activity. Spending
cuts are not contractionary; rather, they promote
private sector efficiency and growth. On the other
hand, statutory tax rate increases or loophole
closings reduce incentives to work, save, and invest
by subjecting more income from capital and labor to
taxation. Such tax hikes may reduce the deficit, if the
economy does not falter too much and if Congress
does not spend the revenue, but they surely reduce
e slighted in
rporate power
nment-directed
to demands for
fall short of expectations (as they
surely would) to 35 percent. He
would lift the wage cap on the
Medicare portion of the payroll tax
(now at about $130,000). Both
measures would raise the cost of
employing the most productive
portion of the population, and
reduce their after-tax earnings at
the margin, leading them to cut
their work, saving, and investment.
The plan would increase the
gasoline tax 10 cents a year for
five years, raising transportation
costs on virtually every product in
the economy, reducing the real
wages of every worker, and leading
higher wages. These cost-raising
proposals would make the United States a less
competitive place in which to produce.
The plan giveth, and the plan taketh away. On the
one hand, it lists expanded saving incentives as a
priority. On the other hand, it would penalize
retirement saving by making 85 percent of Social
Security benefits subject to tax, up from 50 percent at
Institute for
Research on the
Economics of
Taxation
GNP, saving, investment, employment, and wages
below levels they would otherwise reach. Because tax
increases reduce private saving and investment, there
is no hope that deficit reduction via tax hikes will
lower interest rates and spur investment.
The Perot plan is oblivious to these distinctions.
Furthermore, it is internally inconsistent. Each
proposal is categorized in a one-dimensional way that
masks its impact. For example, higher taxes on the
rich and the elderly are viewed entirely from a
(mistaken) fairness standpoint, but they also constitute
a substantial increase in the tax rate on shareholders,
bondholders, and other savers, and thereby raise the
cost of capital. They are at odds with the investment
tax credit Perot proposes to give to businessmen to
lower the cost of capital.
Perot would raise the statutory 31 percent marginal
tax rate to 33 percent, or, if other sources of revenue
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public about policies that will promote economic growth and efficient operation of the free market economy.
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