Perry's tax plan loses near $1 trillion: report

Republican presidential candidate Texas Governor Rick Perry gestures as he speaks during a visit to plastics manufacturer ISO Poly Films in Gray Court, South Carolina October 25, 2011.

WASHINGTON (Reuters) - Presidential candidate Rick Perry's tax plan would cost $995 billion in foregone federal revenues in 2015, based on current law, according to an independent study released on Monday.

The Perry plan would slash projected revenue by roughly 27 percent, said the Tax Policy Center, a non-partisan think tank run by the Brookings Institution and the Urban Institute.

The center's study highlights how lucrative a 20 percent option flat tax would be for the wealthiest Americans.

The after-tax income of the top 0.1 percent of taxpayers would go up 37 percent in 2015, under the plan, compared to current law, assuming the top-rate bracket will revert to 37.9 percent after 2012. But the after-tax income of the bottom 20 percent of taxpayers would rise by just 0.6 percent.

The plan "is exactly what you would expect out of a tax like this," said Roberton Williams, a senior fellow at the center. He said, the plan is "really redistributing income greatly toward the top end."

Perry campaign spokesperson Catherine Frazier said the center's report "confirms all income groups will be better off under (Perry's) tax plan."

Perry said on Sunday his flat tax option would achieve a balanced budget by 2020, even if it brought in lower revenues initially, because his plan includes spending cuts and stimulus to investment and economic growth.

His plan, dubbed "Cut, Balance and Grow," would offer taxpayers a choice of staying with the current code or switching to a 20 percent income tax rate.

Taxpayers in the 10 percent and 15 percent brackets could choose to continue paying at those rates.

The standard exemption would rise to $12,500 for each individual. Investment income taxes would be eliminated. Three deductions would remain, under Perry's plan: mortgage interest, state and local taxes, and charitable giving.

Perry's rival Herman Cain, a former pizza magnate now vying for front spot in the race for the Republican nomination, has also proposed tax reform. The Texas governor has seen his popularity fall while Cain has moved ahead with his so-called 9-9-9 plan for radically altering current taxation methods.

Perry's optional flat tax plan would cost about $570 billion in foregone federal revenues if Congress patches the Alternative Minimum Tax, as usual, and other year-end tax "extenders" are approved, the center said.

The center also focused on a key difference between Perry's plan and previous flat tax proposals, saying that businesses can continue to deduct certain expenses. Flat tax proposals from former House Majority Leader Dick Armey and businessman Steve Forbes eliminated deductions for employee health insurance and retirement contributions.

(Reporting by Patrick Temple-West, editing by Kevin Drawbaugh and Anthony Boadle)