Perry places hopes on flat tax

COLUMBIA, South Carolina (Reuters) - Republican Rick Perry on Tuesday placed his hopes for a comeback in the U.S. presidential race on a plan for a 20 percent flat tax that would give the richest their lowest tax rate in almost a century.

Perry's roll-out of his tax proposal, part of a broad economic plan, came as a poll showed him struggling in the race to decide the Republican presidential nominee.

The Texas governor's plan would also slash taxes for corporations and could mean a tax cut for low- to middle-income households.

Speaking at a plastics plant in the rural town of Gray Court, Perry waved a postcard-sized form that he said would be the same size as a tax return under his plan to simplify the huge U.S. tax code.

"It is time to pass a tax that is flat and fair and frees our people to invest and grow and prosper," Perry said in South Carolina, where conservative voters are dominant and a state Perry would need to win for any chance at the nomination.

A new CBS/New York Times poll of Republicans said Perry stands at only 6 percent, down from 12 percent earlier this month. He trails four other contenders led by businessman Herman Cain with 25 percent support and former Massachusetts Governor Mitt Romney at 21 percent.

Perry's flat tax proposal is his answer to Cain's simple 9-9-9 plan.

Perry would cut corporate taxes from 35 percent to 20 percent and encourage U.S. corporations that collectively have socked away $1.4 trillion in profits overseas to repatriate the money by letting them pay a reduced 5.25 percent tax for a limited time.

A 20 percent top individual income tax rate would be the lowest U.S. levy on the richest Americans since 1916, when it was 15 percent. The current top rate is 35 percent.

But Perry rejected charges that his plan would mostly benefit the wealthiest, saying he is interested in creating jobs, and "if folks who have money are going to be creating those jobs, I don't have a problem in the world with that."

Taking questions from reporters, Perry dismissed polls saying he is lagging behind his rivals and said once Republicans look at his economic plans they will decide, "that's where we want to go."

"I've always said polls are going to go up and down," he said, while suggesting he may make some tactical changes. "There is a long time until this campaign is over."

CONSERVATIVE GOALS

Perry's plan reflected the conservative goal of less government involvement in Americans' affairs. He would cut government spending, roll back regulations and attempt to balance the budget by 2020.

He would overhaul the Social Security program for retirees by letting younger workers invest a portion of their payroll taxes in a market-based pension system. Republican President George W. Bush attempted a similar Social Security reform but could not get it through Congress.

Perry rests most of his plan on tax cuts, giving Americans an option of a 20 percent flat tax or keeping their current tax rate. To blunt criticism that it would hurt the middle class, he would allow Americans making less than $500,000 a year to keep popular deductions on home mortgage loan interest and charity donations.

Perry would also eliminate the tax on qualified dividends and long-term capital gains.

"To do the kind of tax cuts he's talking about implies massive cuts in government spending," said Howard Gleckman, a fellow at the Tax Policy Center, a non-partisan think tank. "I don't quite see how he could possibly balance the budget."

President Barack Obama's re-election campaign said Perry's tax plan seemed guided by the principle of shifting the tax burden from large corporations "onto the backs of the middle class."

Perry proposed the plan after consultations with Steve Forbes, the Republican who offered a flat tax plan in his 1996 bid for the party nomination. Forbes endorsed Perry on Monday.

Perry shot to the top of Republican voter polls when he launched his campaign two months ago but has fallen back after shaky debate performances and a series of distractions.

He seemed to get caught up in yet another distraction on Tuesday when he brought up the largely discredited issue of whether Obama was actually born in the United States, a constitutional requirement to being president.

Obama produced his Hawaii birth certificate earlier this year and the storm over the issue seemed to have calmed. But in a CNBC interview, Perry said: "It's a good issue to keep alive," saying it was fun to poke at Obama on the topic.

He changed his tune a bit when asked about it in Columbia, calling the birth certificate issue a "distraction."

(Additional reporting by Patrick Temple-West and Stella Dawson; Editing by Eric Beech)