Posted on 06/23/2015 4:35:24 AM PDT by Kaslin
Overnight, Rand Paul changed the dynamics of the Republican presidential race when he released his "Fair and Flat" tax plan on Thursday. As he said when he unveiled the plan on video, this is the boldest rewrite of the income tax system in 100 years. Even Ronald Reagan -- who dramatically improved the federal tax system -- didn't perform such a sweeping clean-up of the tax code.
For full disclosure, I spent the last several months helping design this plan with Sen. Paul -- so I'm biased. But there is no doubt that this plan, which reduces income tax rates from as high as 40 percent and business taxes from 35 percent down to a flat 14.5 percent rate, can only be described as explosively pro-growth and pro-jobs.
The 14.5 percent tax would apply to wages, salaries, capital gains, rents and dividend income. The plan eliminates the estate tax, telephone taxes, Internet taxes, gift taxes and all customs and duties.
This plan would take America from being one of the highest income tax rate nations in the world to the lowest. This would suck capital and jobs from the rest of the world almost immediately to these shores. America would move from a nation offshoring jobs, to one that would start in-sourcing millions of them. It gives U.S. workers a fair advantage.
Under the current tax system, the IRS taxes what is produced in America and sold overseas. Under Rand's plan, when goods are produced on these shores and sold abroad, no tax is applied. But when China brings goods into the United States for sale, a 14.5 percent tax at the border is applied. This will reward production and jobs here -- big time. Industrial unions should love this plan because the business tax is a GATT-legal tariff on all imported goods.
For low income and middle class families of four, the first $50,000 of income would be tax free. Moreover, because this plan eliminates the payroll tax withheld from worker paychecks, the average worker with a $40,000 income would get a $3,000 take home pay raise. At a time of falling wages, that would be a big boost to middle class financial security.
Perhaps the strongest case for the Fair and Flat tax is that it eliminates all of the special interest loopholes and carve-outs in the tax code. Tax lobbyists in Washington would become an endangered species -- and it couldn't happen to a nicer group of people. The richest one percent get the preponderance of the tax write-offs, so getting rid of the big deductions would increase their taxable income while lowering the rate.
This plan is the essence of a fundamental principle of good and fair tax policy: broad base and low rates. This means investment decisions will be based on rates of return, not on political calculations.
Opponents are saying this is a European-style value-added tax. Wrong. In Europe, VATs were imposed on top of corrupt and high-rate income tax structures. This plan is not an add-on tax, but a replacement consumption tax that will reduce, not add to, the size of the welfare state.
Would this hike the deficit? The Tax Foundation says 2 million jobs would be added and the GDP would be 10 percent larger after a decade under this plan. This means in a decade the U.S. would have about $2.5 trillion a year more output, and the added jobs and income will add to tax collections. This is right out of the JFK and Ronald Reagan playbook: grow the economy to increase revenues.
Some skeptics at the New York Times and elsewhere are complaining that the Fair and Flat tax can't work in practice. Consider the Hong Kong experiment. More than half a century ago Hong Kong adopted a 15 percent flat tax and has been a glittering model of prosperity and tax efficiency ever since. Hong Kong is now one of the wealthiest places on the globe thanks in part to low tax rates and tax simplicity.
So this is a tax plan that will add to American dynamism by lowering tax distortions and by reducing the role and size of government in our lives. The tax code is the power center in Washington and this plan shuts that down for good. That's bad for K Street but very good for Main Street, USA.
So Rand Paul has suddenly injected a tax-policy game changer into the presidential debate. All the other candidates on the Republican side will have to alter their tax reform ambitions accordingly. Rand just hit the equivalent of a Stephen Curry three-pointer from half court. No doubt the rest of the candidates are studying the Fair and Flat plan and wondering: wow, why didn't I think of that?
I don’t like any Paul but I have to admit I like this idea. Maybe others can pick up on it.
Unfortunately, even if he were elected, this would never make it past the Republicrats in congress...
It all sounds good, but unless you repeal the 16th Amendment, it’s a non-starter.
how so?
Oops, I got it COMPLETELY wrong. Focused on the conusmption side, didn’t catch that it re-works the current income tax. So, uh, my bad.
got it, no prob. I wondered if I was missin something...
Anybody out there STILL think it was a bad call for Trump to jump in this pond?
I like the idea but I don’t like the fact that the clowns in our current IRS will be “responsible” for the “transition”.
Instead, I’d like to see a tiny new Tax Department print the new tax form and offer it as an OPTION for our corporations and 1040 tax-payers.
Then we could have a slow VOLUNTARY changeover — not the chaos of stopping one complex multi-billion dollar tax system while trying to start another multi-billion dollar tax system on the SAME DAY.
Over several years, the deductions and credits and loopholes in the current tax system would be phased out. This process would permit people to adapt slowly — which is (frankly)what most of us do.
Both Republicans and Democrats will stall a flat and fair tax situation. The problem is the lobbyists community and the amount of pressure they’d put on the political folks. If companies and elite were forced into the corner and you had two simple rates (one for industry/companies and one for private individuals)....we’d all wake up and realize a simple ten-percent tax on individuals (even wealthy individuals) was all that was required. I think even most companies....if you said it was one plain tax and somewhere around fifteen percent....then we’d all be happy and half the lobbyists in DC could go and find new work for themselves.
Are they referring to the FICA payroll tax, or something else?
Social Security benefits are calculated based on the amount of income taxed by the payroll tax: how are benefits calculated under this plan?
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