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Rand Paul Tax Plan: Blow Up the Tax Code To Turbocharge Economic Growth

Rand Paul Fair and Flat Tax

 

Thursday Senator Rand Paul announced his plan for an over $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.

Paul’s plan 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. Senator Paul calls his plan “The Fair and Flat Tax.”

In an op-ed in The Wall Street Journal Senator Paul said “Here’s why we have to start over with the tax code. From 2001 until 2010, there were at least 4,430 changes to tax laws—an average of one “fix” a day—always promising more fairness, more simplicity or more growth stimulants. And every year the Internal Revenue Code grows absurdly more incomprehensible, as if it were designed as a jobs program for accountants, IRS agents and tax attorneys.”

Polls show that “fairness” is a top goal for Americans in our tax system, claims Paul. Senator Paul says his plan is “a traditionally All-American solution: Everyone plays by the same rules. This means no one of privilege, wealth or with an arsenal of lobbyists can game the system to pay a lower rate than working Americans.”

Getting rid of the incomprehensible IRS code is something every American who is not an accountant, IRS agent or tax attorney would probably support, but that’s not what really attracted us to Senator Paul’s plan.

We think that Senator Paul’s plan would turbocharge the economy and pull America out of the slow-growth rut of the past decade.

We’ve written about this before, but Senator Paul noted in his op-ed that the U.S. economy is at least $2 trillion behind where we should be with a normal recovery; the growth gap widens every month. Even Obama’s economic advisers tell him that the U.S. corporate tax code, which has the highest rates in the world (35%), is an economic drag Paul noted in his WSJ op-ed.

Senator Paul’s plan also eliminates payroll taxes, which are seized by the IRS from a worker’s paychecks before a family ever sees the money. This will boost the incentive for employers to hire more workers, and raise after-tax income by at least 15% over 10 years claims the Senator.

Senator Paul’s plan was developed in consultation with some of the top conservative tax experts in the country, including the Heritage Foundation’s Stephen Moore, former presidential candidate Steve Forbes and Reagan economist Arthur Laffer.

This 21st-century tax code would establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest. All deductions except for a mortgage and charities would be eliminated. The first $50,000 of income for a family of four would not be taxed. For low-income working families, the plan would retain the earned-income tax credit.

Paul would also apply this uniform 14.5% business-activity tax on all companies—down from as high as nearly 40% for small businesses and 35% for corporations. This tax would be levied on revenues minus allowable expenses, such as the purchase of parts, computers and office equipment. All capital purchases would be immediately expensed, ending complicated depreciation schedules.

While reducing the power of the IRS and making the tax code simple are laudable goals in and of themselves it is the economic growth component of Senator Paul’s plan that makes it so attractive to us.

The Paul 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%, and create at least 1.4 million new jobs.

But don’t take our word for it.

Club for Growth President David McIntosh has released a statement saying, “Senator Paul’s tax plan is an example of why the Club for Growth has concluded in its White Paper that he would be a pro-growth president… It is a serious plan that eliminates tax gimmicks and creates one simple low rate. The Club believes that Senator Paul’s plan would be a huge step forward for the economy and for limited government.”

Click this link to read Senator Rand Paul’s explanation of his “Fair and Flat Tax” plan in The Wall Street Journal.

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