NCPA - National Center for Policy Analysis

The Rand Paul Tax Plan

July 24, 2015

Senator Rand Paul's (R-KY) comprehensive tax reform titled, "fair and flat," is an improvement in comparison to the status quo with respect to investment, simplicity and growth. The plan is expected to boost GDP growth by slightly less than one percent per year, according to research associate Jacob Kohlhepp at the National Center for Policy Analysis.

Taxpayers will accrue significant benefits through the reduction in the complexity of taxation:

  • Plan simplifies personal income taxation by pushing everyone into a single flat 14.5 percent marginal tax rate.
  • Plan also eliminates the estate tax, preserves mortgage interest deductions and charitable deduction.
  • Taxpayers spend $400 billion and 6 billion hours each year filing returns.

Paul proposes a value-added tax (VAT) system, which he calls a "business activity tax."

  • The business activity tax will be a flat 14.5 percent rate.
  • Businesses will be able reduce uncertainty through up-front expensing of capital.
  • Plan will eliminate barriers to free-trade by removing all tariffs and duties.
  • There will be an new territorial system of corporate taxation, in which corporations would only pay taxes in the country where the profits were earned, that will encourage U.S. multinationals to bring profits back to the United States that are currently held overseas.

The Tax Foundation point out that even though the plan will generate GDP growth and more taxable economic activity, the net deficit caused by the larger decrease in tax revenue will increase federal debt by $1 trillion over the coming decade.

In 2014, Senator Paul proposed a budget plan that would enact sufficiently large expenditure cuts to offset his tax plan. Through reforms to Medicare, Social Security, NASA and defense programs coupled with budget process reforms, including a balanced-budget amendment and zero-based budgeting, his budget plan would cut several trillion dollars over the next 10 years.

Source: Jacob Kohlhepp, "The Rand Paul Tax Plan," National Center for Policy Analysis, July 2015.

 

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