On Thursday, Presidential candidate and Senator Rand Paul (R-KY) penned an op-ed in The Wall Street Journal that announced how he intends to reform the federal tax code.
The article's title rather succinctly spells out the premise of Senator Paul's proposal: "Blow Up the Tax Code and Start Over." In the op-ed Paul makes a case for totally repealing all of the current Internal Revenue Code and replacing it with a 14.5 percent flat income tax levied on all individuals and businesses. His plan would eliminate all deductions (except for mortgages and charity contributions), exempt the first $50,000 of income for a family of four, and keep both the Earned Income and Child Tax Credits. The Paul tax reform plan, developed in collaboration with former Presidential candidate (and National Taxpayers Union Board member) Steve Forbes and economists at the Heritage Foundation and the Tax Foundation, does not include any payroll taxes for individuals, eliminates all duties and tariffs, and allows businesses to expense all capital purchases.
NTU Foundation has written extensively over the years on the importance of comprehensive tax system reform. The current code is overly complicated, costing billions of dollars in productivity every year just to comply, and as it becomes more complex, security lapses at the IRS are becoming more frequent.
A complicated tax code is detrimental for the economy and taxpayers alike. But how would Senator Paul's proposal impact both if it was actually put in place?
The non-partisan Tax Foundation crunched the numbers and modeled both the static and dynamic effects the reform might have over the long run. They found that:
- Senator Paul's proposal would increase GDP by about 9.4 percent over the next 10 years.
- In that same time, tax cuts on wages would result in more work hours, roughly the equivalent of 1.4 million additional full-time jobs.
- The tax cuts would lead to a loss of about $956 billion in total revenue over the next ten years compared to current collections.
Senator Paul's plan would have varying effects on filers depending on income level. The Tax Foundation's dynamic analysis found that "the plan would increase after tax incomes by a total 16 percent for all income groups. Filers with income below $10,000 would see their income increase by over 10 percent. Taxpayers in income groups between $20,000 and $75,000 would see their incomes go up by about 14. Those with incomes above $500,000 would see their incomes go up over 20 percent."