US Republican Perry Places Hopes on Flat Tax Proposal

* New poll underscores Perry's challenge

* His answer to Herman Cain's 9-9-9 plan

* Vows to balance the federal budget by 2020

By Steve Holland

GRAY COURT, S.C. (Reuters) - Republican Rick Perry proposed a broad economic plan Tuesday centered on letting Americans pay a flat 20 percent income tax rate that he hopes will reinvigorate his fading presidential campaign.

Perry's challenge in regaining the attention of influential conservative voters in the race to decide the Republican presidential nominee in 2012 was underscored by a new CBS/New York Times poll.

It said Perry stands at 6 percent, down from 12 percent earlier this month, lagging 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, which he said would allow Americans to file their taxes on a postcard, is his answer to Cain's simple 9-9-9 plan and distinguishes himself from Romney, who has said a flat tax would benefit the wealthy.

The Texas governor was laying out his "cut, balance and grow" plan Tuesday in a speech at a South Carolina plastics factory, where conservative voters are dominant and a state Perry would need to win for any chance at the nomination.

Perry gave a preview of his plan in a Wall Street Journal opinion article. The aim is to generate the economic growth to create jobs and reduce America's 9.1 percent unemployment rate. That is the key issue in the 2012 campaign and the reason why Democratic President Barack Obama is considered beatable.

Perry would give Americans a choice: pay a 20 percent flat tax or keep their current rate. To blunt criticism that a flat tax would cut taxes on the wealthy and increase them on the middle-class, he offered some sweeteners.

His proposal would preserve popular tax deductions for home mortgage interest, charitable donations and state and local tax exemptions for families earning less than $500,000 a year.

Perry is proposing the plan after consultations with Steve Forbes, the Republican who offered a flat tax plan in 1996 when he ran a losing race for the party's presidential nomination. Forbes endorsed Perry on Monday.

"TAX HOLIDAY"

Perry would lower the corporate tax rate to 20 percent from from 35 percent. He would give corporations that have parked $1.4 trillion in profits overseas hoping for tax reform at home the opportunity to pay a discounted tax rate of 5.25 percent temporarily to encourage swift repatriation of the money.

Companies have been lobbying Congress hard for legislation to create a repatriation "tax holiday." Its fate may have been hurt by recent studies finding that an earlier tax holiday failed to create new U.S. jobs, as had been promised.

Perry said he would move the United States to a "'territorial tax system" -- as in Hong Kong and France, for example -- that only taxes in-country income."'

He said he would eliminate the tax on qualified dividends and long-term capital gains to "free up the billions of dollars Americans are sitting on to avoid taxes on the gain."

To help older Americans, he would eliminate a tax on Social Security retirement benefits and help those who see their benefits taxed if they continue to work and earn income in addition to Social Security earnings.

Perry said he would also establish a goal of balancing the federal budget by 2020 but admitted it would be hard given the tax cuts he says are needed to re-energize economic growth.