Thread: Rand Paul's tax plan not quite what it seems

Rand Paul's tax plan not quite what it seems

BY JOSEPH LAWLER |
JUNE 20, 2015 | 5:00 AM
The plan would be a massive reduction from todays 39.6 percent top rate for individuals and 35 percent rate for corporations. (AP)

Republican presidential candidate Sen. Rand Paul promised to propose the largest tax cut in U.S. history, and he delivered with a plan that includes surprises for adherents to GOP orthodoxy, even as it has supply-siders ecstatic.

The Kentucky Republican's "Fair and Flat Tax," announced this week as a major plank in his presidential platform, would drastically cut taxes, implementing a single tax rate of 14.5 percent on individuals and businesses. It would eliminate all breaks except for deductions for mortgage interest payments and charitable giving and pro-work tax credits for poor families.

The plan would be a massive reduction from today's 39.6 percent top rate for individuals and 35 percent rate for corporations.

Additionally, Paul would eliminate the payroll tax collected for Social Security and Medicare, which he calls the "workers' tax" in a video announcing his plan. "That's right, it's gone, zero, nothing," Paul says of the tax plan.

It is an "astoundingly good plan," said Arthur Laffer, "and it will put the rest of the candidates on their toes." Laffer, a former Reagan administration economist who is regarded as the father of supply-side economics, was credited by Paul with helping to develop the plan.

There's no doubt that Paul's plan would be a massive tax cut, one that analysts say would dramatically simplify the tax system and shrink federal government revenue by trillions. And it would represent a major step toward the long-sought GOP goal of a flat tax. But initial analysis of the plan suggests that it is not quite what it seems in at least two ways:

First, Paul's proposal for business taxation would effectively amount to a value-added tax, of the kind collected in many European countries alongside individual and corporate taxes.

"His plan makes him the most recent public figure to propose a value-added tax," American Enterprise Institute tax expert Alan Viard wrote in a blog post on Paul's proposal.

Paul doesn't label it a value-added tax, but experts acknowledged it would have the same effect.

"I'm not into the linguistics. They're all about the same size and have the same effect," Laffer said.

Here's how the value-added tax works: It's like a sales tax, but where the sales tax applies to final sales to consumers, a value-added tax is collected on sales by businesses at each stage of production, with credits for taxes paid on purchases from other businesses.

Paul's business transfer tax would work similarly: The tax would apply to total business receipts, minus input purchases from other businesses. Spending on investments such as machines or property, however, would be immediately subtracted from the taxable receipts.

"It's basically value-added by the business," said Michael Schuyler, a tax economist at the nonprofit Tax Foundation who analyzed Paul's plan for the campaign.

Second, the way Paul's business transfer tax is collected means that there is a 14.5 percent employment tax that may even be bigger than the current payroll tax that Paul would repeal.

Because wages and salaries are paid out of the business receipts that make up the tax base for the business transfer tax, they would be taxed at 14.5 percent, a feature first noted by Bloomberg.

Economists assume that workers bear the brunt of employment taxes, whether they're levied on workers or businesses. That's the case with the 15.3 percent payroll tax in effect today, of which only half is technically taken from workers' paychecks.

It would be the same for the taxation of wages in Paul's plan, said Schuyler. The tax "is going to be passed back to the factors of production: labor and capital," he said.

So Paul's plan includes a wage tax, one slightly lower than the current 15.3 percent payroll tax that is tied to Social Security and Medicare funding (a new Obamacare tax also raises Medicare taxes for some high earners). Paul's plans for funding Social Security and Medicare have yet to be spelled out.

The current payroll tax, however, applies only to the first $118,500 of income. All wages and salaries would be taxed in Paul's plan.

As a result, it's not clear whether total employment taxes would rise or fall in the plan. A spokesman for the campaign responded that it is "a business transfer tax, not a payroll tax, so it would be decreased."

"I haven't done the scoring to the penny, but it should come out damn close to a break, and it will be enormously pro-growth," Laffer said.

Schuyler said that in the model used by the Tax Foundation, workers' after-tax income would rise for all income earners in Paul's plan.

That's because on the individual side, the flat tax doesn't kick in until a certain level of income, $50,000 for a family of four.

http://www.washingtonexaminer.com/ra...rticle/2566682

No "tax plan" that relies on the income tax is "what it seems". Just goes to show Rand Paul is as clueless on taxation as he is on immigration and trade. He's a NO GO. He can do some good in the Senate standing up for civil rights and privacy, I admired his work on defeating the renewal of the Patriot Act, I hope it stands, as well as putting the NSA Spying down, at least to some degree, but Rand is way out of his element in a Presidential race, and his pathetic "tax plan" is more proof than we needed.

Lets hope Trump catches on to the FairTax soon. When I contacted Mitt Romney about it during his run for President, unbelievably, he wasn't aware of it but would look into it, his email said. Isn't that unbelievable?! The most important piece of fiscal legislation in the recent history of the United States, and a Republican candidate for President didn't know a thing about it. I'll bet he's wishing now he'd taken some time to study it.

Originally Posted by Judy

No "tax plan" that relies on the income tax is "what it seems". Just goes to show Rand Paul is as clueless on taxation as he is on immigration and trade. He's a NO GO. He can do some good in the Senate standing up for civil rights and privacy, I admired his work on defeating the renewal of the Patriot Act, I hope it stands, as well as putting the NSA Spying down, at least to some degree, but Rand is way out of his element in a Presidential race, and his pathetic "tax plan" is more proof than we needed.

Lets hope Trump catches on to the FairTax soon. When I contacted Mitt Romney about it during his run for President, unbelievably, he wasn't aware of it but would look into it, his email said. Isn't that unbelievable?! The most important piece of fiscal legislation in the recent history of the United States, and a Republican candidate for President didn't know a thing about it. I'll bet he's wishing now he'd taken some time to study it.

I don't find it unbelievably that Romney wasn't aware of the so-called fair tax plan because anyone that has thoroughly researched it can clearly see why it isn't something that would stick in a persons brain pan.

Originally Posted by MW

I don't find it unbelievably that Romney wasn't aware of the so-called fair tax plan because anyone that has thoroughly researched it can clearly see why it isn't something that would stick in a persons brain pan.

Not when they're glued to the income tax pan, you know that authoritarian, communist-based tax pan with the big leak in it we have now.

The FairTax is going to pass, because there's no other better plan to raise the revenue in a manner that brings our industries, capital, investors and technology back home, re-creates tens of millions of jobs, fights free trade and illegal immigration, eliminates all paperwork but for that which the retail tax collectors are paid to process which is a simple two lines on a state sales tax form, all payments are purely voluntary through whatever purchasing choices of new products and services you make, and any legal citizen or resident can sign up for a Rebate if they want to reimburse in advance any FairTax paid or might be paid on essentials up to the poverty line.

It doesn't get any better than that, so Romney really missed the boat on the tax plan part of his run for President, and a few other issues as well, at least for me.

The FairTax is going to pass

Yep, and I'll be riding a unicorn down the yellow brick road, stopping only to pick some lollipops, roses, and gummy bears, on my way to a pink castle on the other side of the rainbow this morning.

Originally Posted by MW

Yep, and I'll be riding a unicorn down the yellow brick road, stopping only to pick some lollipops, roses, and gummy bears, on my way to a pink castle on the other side of the rainbow this morning.

Now THAT's a cute reply to a True American Believer! I believe it will pass, because it's the right thing for a free nation of free people, a good thing that treats all citizens, legal residents and businesses the same, and the best thing to fix our country because of its inherent features that either solve or help to solve many of the major problems that plague our nation and people.

It took over 70 years to repeal slavery and over 170 years to pass the US Civil Rights Act after our US Constitution was ratified, so maybe it will take 18 or 20 years to repeal the income tax and pass the FairTax. And that's okay. We're in Year 16 now since introduction of the bill in 1999, so another 2, 3, 4 years or whatever it takes, it's still better late than never.

Have a great day, MW.