CNNMoneyRand Paul's hopes for a flat tax
By Jeanne Sahadi @CNNMoney March 31, 2014: 7:27 AM ET
If Rand Paul - the Libertarian-leaning, conservative senator from Kentucky - chooses to run for president in 2016, expect to hear a lot about a single-rate flat tax system.
NEW YORK (CNNMoney)
When it comes to taxes, Rand Paul wants them simple and flat.
The blunt-spoken, Libertarian-leaning senator from Kentucky, who won the 2016 presidential straw poll among leading conservatives, favors a flat tax: a one-rate income tax system with a minimum of tax breaks for individuals and businesses.
But Paul hasn't settled on what that rate should be.
He has publicly discussed 17%. An aide said if Paul does make a formal proposal, the rate would not be higher than 17% and could be lower.
Much would depend on which tax breaks Paul chooses to keep. Two would definitely remain: the standard deduction and personal exemptions. But both would be considerably larger than they are under today's code.
The Paul aide said the senator might also consider preserving in some form the tax breaks for mortgage interest and charitable contributions.
Paul hasn't ruled out other types of tax reform if they "eliminate" complexity and regulation. But he has sketched out his views on a flat tax over the past few years.
"What you'd have is an attrition if not an outright elimination of the IRS because it would be so simple that people would comply, and it would be very simple to know whether they complied or not," Paul told Fox News last year.
Under a Paul flat tax, an individual would owe taxes on his wages, salaries and pension payments. But fringe benefits at work would remain tax free to workers, as they are today. One example of that is the contribution employers make to pay for workers' health insurance.
Capital gains, dividends and interest would also be tax free at the individual level, but would be taxed at the business level. Capital gains on owner-occupied housing would also be tax free.
In addition, Paul would eliminate the estate tax and the alternative minimum tax.
Could a flat tax no higher than 17% raise as much revenue as the current system? No. To do that you'd need to have a rate at least in the low- to mid-20% range, said Joseph Rosenberg, a senior research associate of the Tax Policy Center.
But raising the same amount of revenue isn't Paul's goal.
On the contrary, Paul favors tax reform that would raise less revenue than today's tax code is projected to. At the same time, he wants to eliminate deficits within five years and proposes to do so in large part by reducing spending (as a percent of the size of the economy) every year over a decade.
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