
Blow Up the Tax Code and Start Over - kjw
http://www.wsj.com/articles/blow-up-the-tax-code-and-start-over-1434582592
======
acconrad
TLDR: Rand Paul pushes for a 14.5% flat tax.

And of course when asked about how this would create a larger deficit, he
never actually asserts that his flat 14.5% tax across the board would actually
balance the budget.

But here's the crazy thing: his proposal _isn 't even a flat-tax policy_! He
agrees that the first $50,000 for a family of four shouldn't be taxed. That's
a _progressive tax plan._ And it makes sense right - up to a certain amount of
income, one makes so little money that need a bit more help than others to get
by. Makes sense...but then you could logically assert the converse - that
those making so much money need far less help than others to get by, and
therefore could be taxed more without affecting their lifestyles.

And this is why a progressive tax plan works in the United States - there
exists an income level based on the cost of consumer staples, housing, and
transportation, that allows one to be a productive member of society. And so
the further away from you get from that magic number (or delta of that
number), the more that taxes have an effect either on the individual or the
community as a whole. A family cannot get by on $1 a year. A billionaire
simply does not need a billion dollars. The burden on them is far different -
which is why their tax burden should reflect that.

~~~
drzaiusapelord
>He agrees that the first $50,000 for a family of four shouldn't be taxed.

I live in an expensive part of Chicago. $50k for me has nothing in common with
some rural Alabama family making $50k. This is one of the reasons why the flat
tax is wrong. It lacks the flexibility and subtlety of a more complex tax
system. In a nation this large with so many different wealth levels, a non-
progressive tax is just asinine. But it engages conservative low information
voters who just want easy cowboy-ish answers to complex problems, especially
if they're the ones in he rural south who will benefit from this kind of plan
more than northern Democratic urban dwellers.

~~~
jessaustin
The current federal system doesn't change thresholds based on where you live
either, so that criticism seems a bit unfair? How would a system that _did_
change the thresholds even work? If there were some tax benefit involved with
owning or renting residential property in really expensive areas, prices for
those areas would just increase even more to compensate.

Keep in mind, the income tax rate would still be marginal, so you'd only be
paying tax on your income _beyond_ $50k. (I don't recall this specifically
from TFA, but it did say Arthur Laffer helped out and I really doubt he'd
approve a system with a $7250 discontinuity.)

I think I speak for everyone in Alabama (which I'm not) when I say "if you
want a cheaper apartment, move out of the Loop and ride the subway!"

~~~
drzaiusapelord
>The current federal system doesn't change thresholds based on where you live
either, so that criticism seems a bit unfair?

It does, in a way. I submit my mortgage interest, what I paid in property
taxes, etc and a million other things itemized specifically about me and my
income/expense level. A flat tax removes those things for that 14% which is
fine, but it shouldn't be after 50k, it should start at 1 dollar of income.

Not to mention the rebates I get due to current law like adoption credit,
electric car credit, home insulation credit, home office business expense,
etc. Losing those incentives will have a non-trivial effect on society. It
will, for example, make adoption financially impossible for most folks who
current are able to do it and probably strangle the electric car in the
cradle. For reference, our adoption was $40,000 out of pocket and x percentage
will be returned to us over y years. How many people can drop that kind of
money and not get any of it back? Its challenging for many as-is.

~~~
dnautics
So you're complaining because you'll lose privileges that have been granted to
you, that you get to take advantage as a upper-middle class individual. Boo
hoo.

People in the bottom tier (making under 50k) are generally not taking adoption
credits, electric car credits, home insulation credits, etc.

It's doubtful that the electric car will be strangled. Tesla owners are not
buying teslas for the credit. Likewise, Prius/Insight owners were not buying
those for the credit (when that existed) either.

The only electric cars that will die without the credit are the leaf and the
volt.

~~~
drzaiusapelord
Actually, the kinds of people who adopt are often not well off. They borrow
from friends, family, church, etc. Then they pay it back using these credits.

> electric car credits,

Lets talk in 5 years when even the poorest will be driving EV's. They'd be
stupid not to considering how cheap electricity is compared to gas.

Not to mention in a country of high class mobility putting in "donut holes" in
the tax code is just stupid. Now you'll be incentivized to not go past making
$50,000 unless you suddenly want to be hit with taxes. Employers will cap
salaries at arbitrarily $50,000 to avoid tax concerns. These kinds of "one
fits all" caps are often economically destructive. Look at India, where if a
company is larger than x employees, it is illegal to fire anyone. You need to
petition the government to fire that person. That's why there are so many
small companies there and why they struggle to compete with China and other
nations in their development class who don't have weird one-size-fits all
legislation.

~~~
dnautics
> Actually, the kinds of people who adopt are often not well off. They borrow
> from friends, family, church, etc. Then they pay it back using these
> credits.

Yes, these people aren't helped by the _process_ of taking deductions because
they are basically covered by the standard deduction to have zero tax anyways.

>Now you'll be incentivized to not go past making $50,000 unless you suddenly
want to be hit with taxes.

Huh? if you make 50,010 you're not going to be paying 14.5% of 50,010, you're
going to be paying $1.45 in taxes.

>These kinds of "one fits all" caps are often economically destructive.

No doubt, and the US idiotically implements these, too, like in the ACA where
small businesses are exempt below certain sizes, unless you are wal-mart and
can obtain a backdoor administrative exemption.

Now, if you want to rail against "donut holes" the american welfare system has
plenty of those, but that's a separate debate.

>Lets talk in 5 years when even the poorest will be driving EV's. They'd be
stupid not to considering how cheap electricity is compared to gas.

If the lowered expense of the cars is matched by the cheapness of the
electricity to make it economical for 'the poorest', then there would be no
need for a credit. As it is, the credit (like most tax credits) only helps
rich people.

------
elchief
You know what I'd like to see? Fewer total laws in America.

The law is so complex in America, that you probably break several laws a day,
without knowing.

And it costs law makers little to make new ones, and it's a pain to get rid of
old ones.

I'd love to see

a) a huge clean up of out-dated and unnecessary laws.

b) then a cap on the total number of laws. If they want to add a new one, they
need to repeal an old one.

(Allow for very minor growth over time as society becomes more complex).

~~~
rayiner
What significant law do you think is outdated and unnecessary, the repeal of
which wouldn't be controversial? Let's limit discussion to the federal level
since we're talking about a Presidential candidate.

~~~
icebraining
Why the restriction on "significant" laws? Most laws are significant to _some_
people, and a vast morass of insignificant laws is arguably worse than a
single law that affects everyone, since they greatly increase the cost of
doing anything without hiring expensive counsel and hoping that the courts and
IRS will agree with his/her interpretation of your particular case.

~~~
rayiner
If someone is spending money trying to comply with an outdated law, I'd call
that significant. If there is a provision in the tax code that talks about how
to properly depreciate horse-drawn carriages, that's not really increasing
anyone's cost of compliance.

------
tunesmith
I've always wondered exactly where the line is between ignorance and messaging
for politicians. Like, when he says, "[Obama's] redistribution policies have
led to rising income inequality and negative income gains for families."

He can't _actually_ believe that is a strictly true statement. I'd think that
any Republican politician with an understanding of economics would have to
believe that a president's policies are at best contributory rather than a
distinct cause. I get it as messaging; if one believes that progressive
taxation has side effects that cause inequality, then they'd want to gloss
over things to blame the presidency for it. So, I tend to believe that most
politicians have private meetings where they talk about what they actually
think is going on, and then translate it into brain-deadening messaging for
the public. But sometimes I wonder if for a lot of these politicians, how much
of what they say is actually because of willful ignorance rather than
messaging.

Like that guy with the snowball that argued against global warming, that
almost definitely has to be chutzpah rather than stupidity, right? Like, he
would understand the concept that just because a stock price spikes down, it
could still be true that the stock market is going up over time. So he has to
secretly understand the argument about global warming, right? And then we
waste our time trying to explain how a snowball doesn't disprove anything, and
he doesn't care because he already knows that. There's got to be a term more
accurate than chutzpah for someone that deliberately lies and plays dumb,
knowing they can get away with it.

~~~
patdennis
>most politicians have private meetings where they talk about what they
actually think is going on, and then translate it into brain-deadening
messaging for the public

Yes, sort of, but the reality of these things are so well understood all
politicians that there's not often that much of a reason to discuss these
things outright.

When a politician (and by "politician," I do not mean a single person. I mean
an amalgam of the politician, their staffers, and their advisers) are weighing
an issue, the actual merits of the arguments are just a part of the equation.
They're weighing the interests of various groups and constituencies, they're
considering coalitions and alliances and favors, and making a pragmatic
decision. Usually a mix of their conscience, their constituents, their
fundraisers, and their party.

Rand is a bit of an outlier on this front because he is a legitimate True
Believer, but he's still a pragmatic true believer.

Then they hire someone like me to turn it into the soul deadening messaging.

But, yes, these people understand both sides of the issue. They are usually
very smart. And if they don't understand the other side of the issue, their
close advisers do.

~~~
tunesmith
Oh, so _you 're_ the problem. ;-)

It's too bad, really. The general public gets more engaged for presidential
elections, and they start caring about the actual issues, but then there's no
resource to allow the citizen to drill down into the actual argument as deeply
as they'd like, so they can try to understand it to the depth that a close
adviser would. So instead they hear a bunch of bull and they get disillusioned
and go back to voting while uninformed. Which is really what the politicians
want, anyway.

~~~
patdennis
Ehhh gonna have to nitpick again

> there's no resource to allow the citizen to drill down into the actual
> argument as deeply as they'd like, so they can try to understand it to the
> depth that a close adviser would.

There are tons of resources [one example:
[http://www.vox.com/cards](http://www.vox.com/cards)]. But the reason we have
a republic is so that individuals don't need to become policy experts. They
can rely on heuristics and the system is robust enough to handle it. This
usually works pretty well

>go back to voting while uninformed. Which is really what the politicians
want, anyway.

Most pols don't want this. Politicians want informed voters so people will be
aware of the extreme efforts they go through to make their constituents happy.
Election positions are determined based on polls, and extreme rigorous
scientific effort goes into shaping candidates who are able and want to
represent the policy desires of their constituents. (sure, the politicians
might not actually believe these things, but to me that's usually irreverent.
They want to be hired to do a job, which is representing the views of other
people) The problem is, uninformed voters are more willing to switch sides
based on emotion, ruining the math.

Informed citizens would be bad for some politicians (for example, blue state
republicans who have to walk the line between the demands of their extremely
conservative donors and their more moderate constituents). While some would do
better with more informed voters (conservative red state democrats, for
example, would be more able to shed the reputation of their national party and
run on their conservative values if fewer people voted on policy as opposed to
heuristics)

Basically, it's complicated

------
qsymmachus

      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.
    

I think this is a point people across the political spectrum agree with. It
does not follow, however, that simplifying the tax code would require a
regressive flat tax. One could easily imagine a simplified tax code that still
has progressive tax brackets.

    
    
      The left will argue that the plan is a tax cut for the
      wealthy. But most of the loopholes in the tax code were
      designed by the rich and politically connected. Though the
      rich will pay a lower rate along with everyone else, they
      won’t have special provisions to avoid paying lower than
      14.5%.
    

This would be a massive tax cut for the wealthy, unequivocally – a 25.1 %
lower tax rate for the top bracket. The idea that this cut would be offset by
closing unnamed loopholes is disingenuous at best. A 14.5% tax rate also
conveniently matches the current maximum capital gains tax rate of 15%, which
is the effective tax rate the ultra wealthy already pay.

~~~
dragonwriter
> A 14.5% tax rate also conveniently matches the current maximum capital gains
> tax rate of 15%

Well, except that 15% is the next tier down from the top capital gains tax;
the top tier is 20%.

Plus the fact that 14.5% _does not_ match 15%. If you don't believe me, I'll
give you $14.50 for the "matching" $15.00 and repeat that until you're
convinced.

~~~
dnautics
Taxes aren't arbitrarily iterative (they only hit once a year), so your
"repeat until you're convinced" is kind of a poor analogy. 14.5% is
_comparable_ to 15%, and lower (which incentivises people to quit using the
capital gains cheat), but not much lower. That level of sophistication in and
of itself shows that this is not total crackpottery, but at least somewhat
well-thought out.

~~~
dragonwriter
You seem to have read the part about 14.5% not matching 15%, but not the part
about 15% not actually being the top capital gains tax rate to start with, 20%
is.

14.5% doesn't match 15%, though maybe it "close enough" for some purpose, but
it even moreso doesn't match 20%, and its not even particularly close.

~~~
dnautics
Long-term capital gains are at 15%. If you know how to set up a corporation,
you can basically strategically convert short-term gains into long term, by
taking an equity position in your company and (I think, I have not done this
myself) withdraw salary as 'dividends', and this is taxed as ltcg as long as
you hold a stake in your company for longer than a year.

~~~
dragonwriter
> Long-term capital gains are at 15%.

No, long-term capital gains taxes are on different rates based on the same
brackets as regular income tax; for the top income tax bracket, the long-term
capital gains rate is 20%. For other income tax brackets from 25% up, the
long-term capital gains rate is 15%. For the income tax brackets 15% and
below, the long-term capital gains tax rate is 0%.

------
mikeash
Yay, tax code simplification.

Oh crap, "flat tax."

This is the fundamental problem. Everybody wants a simpler tax system. But
nobody can agree on which parts to remove, or how to change it. The current
system is close to what you get when everybody tries to get what they want.
Even if you blew it up and started over, I think you'd get back to the current
state pretty fast.

Edit: everybody can stop replying to my comment proposing your favorite
simplified tax system and explaining why it's great. You're missing the point
here. If you want to discuss your favorite tax system, make a top-level
comment.

~~~
3pt14159
Flat tax + basic income is the only sane way forward. Most other systems lead
to stupid incentives, unjust inequality, and over priced accountants.

For example. Assume a household of two people. one earns $20k per year, the
other earns $80k per year. With a 50% tax and a $10k (after tax) per year
basic income you get the following:

    
    
        2*$10k + 0.5 * ($20k + $80k) = $70k
    

Now if each partner earned the same you would get:

    
    
        2*$10k + 0.5 * ($50k + $50k) = $70k
    

Which is exactly what you want. The problem with income splitting measure that
try to replicate this is that they lead to a perverse disincentive to divorce.
So in the first example, the person earning $80k would no longer be able to
offload part of his income to the lower paying person, and the two persons
effective income decreases just when their expenses double. Furthermore it
discriminates against people that are single, which is politically expedient,
but unjust.

It also solves the welfare and old age security paperwork problem. There are
some other problems: like having a higher tax rate to pay for all this basic
income, but ultimately I think it would unleash more minds on problems that
matter instead of setting up family trusts for the wealthy.

~~~
shawkinaw
Another way to go is get rid of income tax altogether and replace with a
national sales tax. Nice thing about that is that you can exempt essential
things like unprepared food. That way the effective tax rate is much lower if
you're a low earner, since most of your money will be spent on essentials.

No more IRS is another bonus, and since most states already have a sales tax
the infrastructure is already there.

~~~
fiblye
Then the wealthy make all of their big purchases outside the country and
import them in. If the country starts taxing purchases made outside the
country, then those purchases become "gifts from a good friend."

There's also the fact that the ultra rich get unbelievably rich because they
spend only small fractions of their income, meaning the rich would be paying
pretty much nothing in taxes ever.

------
ccockerhamkc
"Taxes are complicated" translates to: "People don't understand the rules for
tax brackets that don't apply to them and think they are getting screwed over.
So let's change the tax laws to save those(people or businesses) making more
than $100k a year some money while doing nothing to help those making less."

~~~
facetube
I'm not in favor of any of the flat tax proposals... but this is the tax
system where receiving a 1099 for from-home software development means you
literally have to get out a tape measure and _measure the room where you did
the work_. The exemption allowance worksheet on the W-4 is similarly insane.
There's a lot that could be done to make the tax system here less complicated
without touching the tax rates themselves.

~~~
ccockerhamkc
Yeah? You don't know if your room is a 10X20? You make it sound like this is
some crazy task that requires some special ability.

------
GFK_of_xmaspast
Saving you a click: Rand Paul advocates for the 'flat tax'.

~~~
criley2
There's some interesting bits like the earned income tax credit for the
working class stays, and the first 50,000$ of income of a family of 4 wouldn't
be taxed.

Capital gains are left unmentioned (probably because they're being abolished,
and this is most likely going to reduce the effective tax rate on capitalists
to ~0.0% -- no capital gains, no estate tax, no gift tax, so in essence taxes
will finally be 0% for the oligarchy. Policy like this helps pave the way for
what we all know is true: we're going to meet the first trillionaires in our
lifetime).

The other critical problem they don't mention is:

* $2 trillion dollar tax cut = $2 trillion dollar revenue cut.

There is no mention of cutting spending, and there IS mention of "growing
economy", so there is only one conclusion: "Liberal Stimulus". When you cut
revenue by $2 trillion and leave spending the same, you end up issuing debt to
cover the deficit. It's the same debt-driven tax scheme literally every
republican has proposed since Reagan (who did the exact same thing perfectly:
tax cuts + spending increases = growing economy and growing debt).

~~~
orkoden
Debt isn't that bad for a state. A state isn't a company and has to make a
profit. It's there to provide infrastructure, stability, and security. As long
a state can afford to pay the interest rates, how high the debt is matters
less. Especially for the major economies in the world today it's even less
problematic. The USA, China, Japan or any other G7 state is basically safe
from bankruptcy, because it would disrupt the world economy too much. Just
look at the banking crisis and the bailouts there.

~~~
mikeash
I wouldn't mind so much if they would be honest about it. "We will cut taxes
and increase the deficit and thereby stimulate the economy." OK, cool. But
instead what people like Paul say is, "We will cut taxes and this will result
in a net increase in revenue by stimulating the economy."

------
Animats
Oh, another right-wing "flat tax" guy. Somehow, these simplified tax schemes
always result in lower taxes for rich people.

The tax code is complicated because of lobbying for exceptions. Propose
removing some of those exceptions, and the lobbyists will line up in the House
and Senate office buildings. (There's a book about that, "Showdown at Gucci
Gulch". The cover picture is of lobbyists lining up.)

------
rayiner
I love the idea of a flat tax, but flat taxes don't get rid of the
complexities of the tax code. The tax code is definitely full of random cruft,
but the bread and butter that keeps the IRS and all those tax attorneys busy
are a few _principled_ features of the system: taxing net rather than gross
income, deducting the value of depreciating capital assets over an
amortization schedule, taxing income internationally, taxing capital gains
differently than income, not taxing certain intra-familial transfers, etc.

Most of the complexity of tax accounting is complexity that's intrinsic to
accounting itself.

NB: If you want to learn more about the theory of the U.S. tax code, I can't
recommend this book enough: [http://www.amazon.com/Federal-Income-Taxation-
Concepts-Insig...](http://www.amazon.com/Federal-Income-Taxation-Concepts-
Insights/dp/1599419378/ref=sr_1_3?s=books&ie=UTF8&qid=1434653971&sr=1-3&keywords=federal+income+taxation)

~~~
driverdan
> flat taxes don't get rid of the complexities of the tax code

Most flat tax proposals don't allow for exemptions. You pay your taxes off
your gross salary, full stop. That would eliminate 99% of the tax code
complexity for most individuals.

~~~
big_maybe
Gross income isn't income for purposes of taxing. Consider that after expenses
a person may actually have lost money. Tax her anyway?

~~~
dragonwriter
> Gross income isn't income for purposes of taxing.

It is for _personal_ income (business income is different.)

Well, strictly, _adjusted_ gross income is income for purposes of taxing, but
AGI is gross income after deductions allowed in the tax code, and "flat" tax
proposals -- including Paul's -- almost without exception call for eliminating
most deductions or all deductions (Paul expressly states that he will
eliminate all except for charity and mortgage-related deductions.)

(Keeping one of the complexities of the current tax code, Paul continues to
allow more deductions for businesses than individuals.)

------
Simulacra
I might add as a former lobbyist, everything he said in the article about my
former profession is absolutely correct. Every day we analyzed policy to find
ways for our clients (corporations) to increase profits, decrease costs, and
eliminate taxes. On the other hand we did a lot of good for small and medium
sized business. Unfortunately working for small and mid-sized businesses, and
average citizens, doesn't pay the bills. I just bought my first house, and I'm
starting to save and budget wisely for my family. Anything anyone - be it the
President, congress, or otherwise - can do to reduce my tax burden, reduce
government involvement in my life, and increase money for my family, is a good
thing in my book. Like I said in my last comment: I'm so sick of both parties
that I'm less interesting in "Republican" or "Democrat" and more interested in
the actual person.

------
ivan_ah
Observation 1: Nice idea, but what remains to be filled in is why people who
earn 1M per year will want to give $145,000 to the gov. every year, instead of
continuing to use N levels of ownership indirection and contribute-money-to-
the-budget-like-right-now-this-year half of this amount? Or maybe even less if
Investment gains or holding company? Not sure how income from rent counts.

So in terms of "let's cleanup the API" its a great idea, but how do you make
the real estate owners and corporates pay all of a sudden? [1]

Observation 2: the minimum income before you start to get taxed, is a very
interesting number. A half-step towards having a guaranteed minimum income for
everyone, is to set this "target number" as the income where taxation starts.
Thought experiment. If the tax-exempt portion of your income were increased to
$15k, or $20k, how would that affect people's choice of occupation? The
Hipsters will definitely be in---they're like "$20k tax-free, I'm like a
lunberjack/lumberjess living out in the wilderness who pays no taxes; that's
my beer and bike money and I don't need more." (Such an increase in the
"personal amount" will make a big hole in the budget, but ask your self this,
why are we taxing people who make $14k per year?)

__________________

[1] [http://www.blue-route.org/blog/wp-
content/uploads/2014/09/3-...](http://www.blue-route.org/blog/wp-
content/uploads/2014/09/3-individual-and-corporate-income-taxes-as-share-of-
total-federal-revenue-1934-to-2015-national-priorities-project.png)

------
jws
United States tax complexity isn't because of the shape of the tax(income)
function. That function is the _most_ important part of tax to most Americans,
but the complexity comes from two other places:

1) Some people will game the system for economic advantage. Of the 321M
Americans, a certain portion are both extremely clever and amoral. A lot of
the code is a response to "They did what‽"

2) Americans tend to have an inbuilt belief that everyone should make it on
their own which manifests into the government not "giving" things to people,
even if it is to induce a person to accomplish the government's goal. Since it
is politically difficult for the government to use payments to change people's
behavior it is easier to "not take as much" instead and accomplish the same
end with a tax credit. This pushes all sorts of policy and governance into the
tax code.¹

␄

¹ As an example, I have in the past claimed "historic building renovation" tax
credits. I have never renovated a historic building. My state wants to spend
$X to preserve historic buildings, but they politically can't give $X to
people preserving buildings. So instead, they give transferable tax credits
worth $X to the renovators, who probably aren't paying much tax (because they
are in the business renovating historic buildings, like that pays) and don't
have a use for the credit. If you know the right finance person, you will find
there is a quiet market that connects sellers and buyers, so you can buy
credits and split the savings with the seller 80/20 if I recall. It's a
stupidly complex system that only puts 80% of the state's cost into what it
wanted done, but at least they didn't _give_ anyone money to preserve
buildings.

------
trimble-alum
Bernie Sanders is the only 2016 candidate serious about kicking out the
plutocracy.

~~~
mlitchard
Yes, and if he even comes close to getting the nomination it will signal a
huge change in American politics.

------
fredgrott
Some Notes: Pull out that IRS booklet you might have hidden if you examine the
graph:

Over 65% of gov receipts are from income tax and payroll taxes.

from SBA there are only 35 million businesses

US pop is 307 million(2007 numbers)

It is not a simple solution where you say A or B group is not paying
enough..flat tax is simplistic band-aid suggested by simpletons

------
ende
I say we axe income tax completely. Two reasons: 1) even a progressive income
tax is highly regressive when one considers that the wealthy mostly don't even
earn employment income and therefore don't pay tax on it, and 2) taxation on
income is the source of most discontent with redistributive policies.

I propose a multi-layered tax code operating in coordination at each level of
government.

1) Land Value Tax collected by local governments, with land valuations
determined at the state level and the revenue redistributed as Universal Basic
Income by the Federal government (your SSN becomes your UBI account number).
Local governments may in turn add a percentage to the LVT to replace property
tax revenues. Minor recipients of UBI (below age of 18) receive their income
as a school voucher. The LVT replaces income and payroll taxes as the majority
of aggregate national tax revenue, and the UBI replaces SS, EITC, and a host
of other safety net programs.

2) a Progressive VAT to be collected by the states with Federal revenue
sharing. This becomes the second largest source of tax revenue and funds the
majority of state functions, with the Congress taxing a portion of state VAT
revenues to fund the Federal government. Most domestic spending programs would
be devolved to the states to fund and manage directly rather than redistribute
as block grants. The VAT would be progressive in that it would primarily
target non-essentials (not food, for example).

3) the rest of Federal revenue sources would come from taxing financial
instruments (capital gains, etc), as well as its traditional sources like
corporate tax, tariffs, duties, etc. It would also have the option of
increasing its share of the VAT. The Federal budget would be significantly
smaller than it is today but would be free of the large domestic spending
programs (which it would still regulate), as well as from pork barrelling
which would instead never leave state borders to begin with. Federal spending
would instead focus on interstate and international commerce, defense,
national initiatives (nasa, nih, etc).

So yea, just a simple adjustment ;)

------
orkoden
Flat tax benefits the top incomes more than the bottom ones. But we now know
for certain that trickle down just doesn't work and that increasing income for
the poorest benefits the economy the most.

[http://www.theguardian.com/business/2015/jun/15/focus-on-
low...](http://www.theguardian.com/business/2015/jun/15/focus-on-low-income-
families-to-boost-economic-growth-says-imf-study)

Getting rid of exemptions and special rules is a good idea to reduce
bureaucracy. You can replace tax exemptions with direct subsidies to make the
amount spent on it more transparent. A progressive income tax makes a lot of
sense and has lots of configuration levers.

~~~
refurb
_Flat tax benefits the top incomes more than the bottom ones._

Not under Paul's proposal...."I devised a 21st-century tax code that would
establish a 14.5% flat-rate tax applied equally to all personal income,
including wages, salaries, dividends, capital gains, rents and interest."

Take a look at what tax rate the high-earns are paying. It can often be a
small percentage than lower income earners. If the rate was flat at 14.5% for
_all income_ (also removing a lot of the current exemptions), I think you'd
see high income earner's overall tax rate increase.

------
kjw
If you get the paywall, either use a Google search result, or use this link -
[https://archive.is/mfEvt](https://archive.is/mfEvt)

------
devy
Interestingly, the 14.25% tax rate is not new. Donald Trump proposed in his
2000 presidential bid. At the time, 14.25% one -time wealth tax on personal
wealth with $10MM or more would collect $5.7 trillion, which wipe the ENTIRE
U.S. debt.

[http://www.ontheissues.org/Celeb/Donald_Trump_Tax_Reform.htm](http://www.ontheissues.org/Celeb/Donald_Trump_Tax_Reform.htm)

~~~
jessaustin
"One-time" taxes feel a bit like theft, though, don't they? The follow-on
effects wouldn't be pretty either, after the billionaires realize how foolish
it is to keep their money in USA accounts.

------
astraelraen
1991 Master Tax Guide versus 2012 Master Tax Guide
[https://dl.dropboxusercontent.com/u/1510099/linked/MasterTax...](https://dl.dropboxusercontent.com/u/1510099/linked/MasterTax%20Comparison.jpg)

------
Simulacra
I like this guy more and more each day. I've grown so weary of the political
parties that I'm desperately seeking a really different candidate who can push
a more libertarian agenda. I just hope he sticks to his word.

------
oldpond
This is good spin-doctoring. The financial sector always wants to point the
finger at taxes. The problem is still the banks. Declare debt amnesty,
regulate the banks. Watch the economy soar.

------
dragonwriter
> So on Thursday I am announcing an over $2 trillion tax cut

Apparently, Rand Paul thinks he's a dictator, not a Senator: he is _proposing_
, not _announcing_ a tax cut.

> 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. I call this “The Fair and Flat Tax.”

Which is odd, since the proposal is _neither_ fair _nor_ flat.

> The Fair and Flat Tax 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.

Abolishing payroll taxes might be a good idea, though since federal payroll
taxes are dedicated levies to support certain programs, one needs to address
whether this is abolishing the _programs_ (Social Security and Medicare) or
changing their funding source to draw from general revenues. Any evaluation of
the proposal to eliminate these taxes is obviously strongly affected by this,
which Paul does not address.

Eliminating the _employer_ share of payroll taxes (combined with the minimum
wage, which limits the minimum payroll cost before payroll taxes) does
increase the incentive to hire workers at the low end of the pay scale, and
increase the nominal pay level that employers can offer for employees that
they would already be fully incentivized to hire at higher levels; eliminating
the employee share has no impact on incentive to hire or nominal wages, but
does increase after tax income at any nominal wage level.

The claim that doing this would raise after tax income by "at least 15%" over
any time period is in serious need of some justification; certainly, at the
low-end of the scale, that seems to be well within the direct effect, but for
employees at the higher-end of the wage scale (after the Social Security cap),
it would have a much smaller direct effect; so, what does this number really
refer to and how is it justified?

> I devised a 21st-century tax code that 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.

While I like the idea of eliminating distinctions between different sources of
income -- particularly capital income subject to reduced capital gains tax,
labor income subject to normal income tax _plus_ payroll tax, and
miscellaneous income subject to normal income tax but not payroll tax, these
sentences also reveal that the proposal is not _flat_ , and also (unless major
features related to what is described here exist that are omitted in the
description) its also not _fair_.

Its not _flat_ , but a two-tier progressive tax system, because it has a range
with a 0% marginal rate, and a range with a 14.5% marginal rate. That's
progressive, not flat.

Its not _fair_ (with the caveat above) because its a progressive system in
which income earned over several year period but realized at a particular
point is treated the same as income earned in the period realized. This is a
fairness issue that is addressed (poorly, to be sure, and a better mechanism
is definitely needed) by the existing distinction between other income
(including short-term capital gains) and long-term capital gains.

The current system is roughly fair (ignoring the disparate impact of payroll
taxes and payroll tax supported programs, just considering income/capital
gains taxes) between pure wage earners and those who supplement wages with
some long-term capital holdings but who don't have enough long-term capital to
structure trades to derive substantial continuous year-over-year income from
different batches of long-term holdings, but unfair between both those groups
and those who _are_ major capitalists, who are favored over both the other
groups.

Rand's proposal (assuming it doesn't have major relevant features that are not
described) is roughly fair between workers and large-scale capital holders,
but unfair between both those groups and small-scale capital holders, who are
_disfavored_ compared to either other group. As such, it is most unfavorable
to the group moving out of the laborer category into the capitalist category.

> The left will argue that the plan is a tax cut for the wealthy.

Because it is, enormously.

> But most of the loopholes in the tax code were designed by the rich and
> politically connected.

As, for that matter, was Rand's plan. The people he refers to helping him
right it are both rich and politically connected, as is Rand himself. So what?

Who designed it is a different question than how it distributes tax burden
relative to Rand's plan. And while the present system may have been
predominantly designed by the "rich and politically connected", and may even
excessively favor the rich, Rand's plan is still a tax cut that
disproportionately favors the rich.

> Though the rich will pay a lower rate along with everyone else, they won’t
> have special provisions to avoid paying lower than 14.5%.

The rich won't be able to control legal entities outside US tax jurisdiction
that are the actual recipients of income and expend it for the benefit of the
owners? Because that's one of the main ways they have of evading tax now --
not being the legal recipient of income. No matter how you structure a tax on
income, as long as people can benefit without being the legal recipient of
income, they can avoid it. I'll trust claim that you've actually got a plan
that eliminates all avenues to evasion when the details of how you plan to do
that are subject to scrutiny. Until then, its just puffery.

Also, both the mortgage and charity deductions are tools for evading taxes,
particularly the charity deduction. But Paul plans on keeping those. He also
addresses only deductions, but not credits -- many credits are popularly seen
as loopholes used for evasion by the rich, and other credits are distinctly
major tools of aiding those on the lower end of the income distribution,
particularly EITC. Is he using sloppy language and meaning deductions and
credits when he talks about deductions, or does he plan to leave credits alone
preserving the "loopholes" that take that form, or has he just omitted an
explanation of how he would handle existing credits?

The handwaving here that the elimination of "tax loopholes" would somehow
shift this from the obvious disproportionate pro-wealthy tax burden shift into
something more fair needs some quantitative support.

> The immediate question everyone asks is: Won’t this 14.5% tax plan blow a
> massive hole in the budget deficit?

Well, duh, of course it will.

> Here’s why this plan would balance the budget: We asked the experts at the
> nonpartisan Tax Foundation to estimate what this plan would mean for jobs,
> and whether we are raising enough money to fund the government. The analysis
> is positive news: The 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.

While the Tax Foundation is a "non-partisan" right-wing think tank that hasn't
ever seen a tax cut for the wealthy that it doesn't like, I'll note that even
Rand's claim about the Tax Foundation's findings actually doesn't address
deficit/revenue claims at all.

> my plan would actually reduce the national debt by trillions of dollars over
> time when combined with my package of spending cuts.

Over how much time? And, of course, if your only statement of deficit impact
one way or the other is "when combined with my package of spending cuts", I
then can't even begin to consider the merits of your tax plan without first
having bought into your particular package of spending cuts.

------
omouse
Disrupt the tax system! woohoo! ;p

