Rand Paul ‘s Plan: ‘Blow Up the Tax Code’ for a 14.5% Flat Tax
Policy + Politics

Rand Paul ‘s Plan: ‘Blow Up the Tax Code’ for a 14.5% Flat Tax

Kentucky senator and Republican presidential hopeful Rand Paul announced today that he would take up the mantle of former presidential candidate Steve Forbes and pursue the “noble cause” of replacing the U.S. tax code with a one-size-fits-all “flat tax” of 14.5 percent.

In an op-ed in The Wall Street Journal, Paul lays out his plan to, as he puts it, “blow up the tax code and start over.”

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Calling it “The Fair and Flat Tax,” he says his plan will be equivalent to a $2 trillion tax cut “ that would repeal the entire IRS tax code—more than 70,000 pages—and replace it with a low, broad-based tax of 14.5% on individuals and businesses. I would eliminate nearly every special-interest loophole. The plan also eliminates the payroll tax on workers and several federal taxes outright, including gift and estate taxes, telephone taxes, and all duties and tariffs.”

The first $50,000 earned by a family of four would be exempt from taxation under the Paul plan. Additionally, the 14.5 percent rate would apply to all business income as well, replacing the 35 percent rate currently in place, which is higher than the rates in virtually all other developed countries.

Paul says that he developed his plan in consultation with the Heritage Foundation’s Stephen Moore, former presidential candidate Steve Forbes and Reagan administration economist Arthur Laffer, who are, depending on whom you ask, either an All-Star team of conservative economic thinkers, or a rogues gallery of charlatans peddling tax policy snake oil.

The Paul plan has more than a few holes that will have to be filled in with specific details. For instance, it completely eliminates payroll taxes, which among other things fund huge (and hugely popular) entitlement programs including Social Security and Medicare.

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Also, there’s the matter of the $2 trillion in federal revenue that would be lost under the Paul plan.

Not to worry, the Kentucky senator says.

“We asked the experts at the nonpartisan Tax Foundation to estimate what this plan would mean for jobs, and whether we are raising enough money to fund the government. The analysis is positive news: The plan is an economic steroid injection. Because the Fair and Flat Tax rewards work, saving, investment and small business creation, the Tax Foundation estimates that in 10 years it will increase gross domestic product by about 10 percent, and create at least 1.4 million new jobs.”

The Tax Foundation, while nominally non-partisan, is generally seen as a right-leaning think tank with a bias toward business-friendly tax cuts.

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And, as with virtually any candidate’s promise to slash Americans’ tax burden, the Paul plan comes with assurances that any budgetary shortfalls will be made up unspecified spending cuts to be proposed later.

Paul also notes that some Americans may be bothered by the transition away from a system of progressive taxation. That is, away from a system where the wealthy pay a higher share of their income in taxes than the poor do. Paul’s system would largely do away with that distinction for most of the U.S. middle class.

Yes, Paul admits, the wealthy will get a huge tax cut if his plan is implemented, and will pay the same marginal rate as everyone else. However, he offers:

“[M]ost of the loopholes in the tax code were designed by the rich and politically connected. Though the rich will pay a lower rate along with everyone else, they won’t have special provisions to avoid paying lower than 14.5%.”

That’s likely to be cold comfort to the janitor paying the same marginal tax rate as the CEO whose office he’s cleaning, but of the two, the janitor isn’t really Paul’s audience here.

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