Yahoo Finance Rand Paul wants to say 'goodbye tax code'
Can we really blow up the tax code and start over?
That’s the suggestion of Presidential hopeful Senator Rand Paul (R-KY), who is using a Wall Street Journal op-ed piece to spell out his proposal for a flat tax. Paul’s “Fair and Flat Tax Plan” would set rates at 14.5%, eliminate the payroll tax and allow deductions for only mortgage interest payments and charitable giving.
Yahoo Finance Columnist Rick Newman sees the appeal.
“It sounds like a great idea, it’s irresistible-- blow up the tax code,” he notes. “It’s also impossible.”
So what’s the problem? Newman says it’s bucking the status quo.
“Every lobbyist would have to leave town for a month, turn off their TV and cellphone and every way to keep in touch, and Congress would have to secretly do that in a month because everybody has a stake in the tax code as it is,” he explains. “It is just politically impossible to do that at this point.”
Jeremy Hill, Managing Partner at Old Blackheath, points out it’s also important to remember when you’re considering changing how we pay taxes, you have to look at both sides of the equation.
Related: Why Ted Cruz, Rand Paul- and Russian oligarchs- love the flat tax
“Anytime you talk about blowing up the tax system or implementing something that’s very fresh or different or new, that sounds wonderful from one perspective,” he explains. “But from the other perspective, the proposal he’s making basically takes about $2 trillion out of the federal coffers. Where are we going to stop spending? It’s not a fulsome proposal until you detail the other side of the balance sheet.”
Newman thinks Hill is spot-on about that.
“Americans think, 'oh, you can probably cut $2 trillion over 10 years' -- it’s just waste, it goes for nothing useful,” he says. “Then you see actually that funds Medicare, Social Security, Medicaid, road building, the Federal Aviation Administration and on and on and on. And people say, ‘I don’t want to cut any of those things,’ and you get stuck in the situation where yes, I’d like taxes to be lower but I don’t want to cut any spending.”
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Paul argues his proposal would be an “economic steroid injection” that will boost the gross domestic product by 10% and create at least 1.4 million jobs over the next decade, increasing government revenue.
But Newman is more than a bit dubious about that claim.
“This is where you get to the ‘magic wand’ of the flat tax-- it’s going to make the economy magically grow by so much that we’re going to get all this tax revenue that’s going to solve all these problems,” he counters. “Except we’ve had a few real-world experiments with this and it hasn’t happened.”
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