Anyone currently following the Republican primaries may not have noticed Rand Paul’s plan to abolish the tax code as we know it among the many controversial proposals. Paul is calling for the entire IRS tax code (comprising more than 70,000 pages) to be repealed and replaced with a 14.5% flat tax on individuals and businesses. ((Rand Paul, Blow Up the Tax Code and Start Over, Wall St. J. (June 17, 2015, 7:09 PM), http://www.wsj.com/articles/blow-up-the-tax-code-and-start-over-1434582592.)) This flat-rate tax would in theory apply equally to all personal and corporate income, and would eliminate many taxes outright, including the payroll tax, gift and estate taxes, telephone taxes, and all duties and tariffs. ((Id.))
Though Paul argues that his plan would be the simplest alternative to the current system, he would continue deductions for mortgage interest and charitable donations as well as the earned-income tax credit for low-income families. ((Id.)) Thus, despite Paul’s promise to “blow up” the tax code, he would still keep certain existing popular write-offs that would reduce the “supposed simplicity” of a flat tax. ((The Editorial Bd., Rand Paul’s Fake Flat Tax, N.Y. Times (July 10, 2015), available at http://www.nytimes.com/2015/07/11/opinion/rand-pauls-fake-flat-tax.html?_r=1.)) Furthermore, Paul’s plan would not provide sufficient funds for the federal government to operate. The most conservative estimates made by the Tax Foundation show that it would reduce revenue to the Treasury by one trillion dollars to three trillion dollars over a decade. ((Id.)) To counter this, Paul has announced he will cut federal spending in order to offset revenue loss. ((Id.)) However, this would likely make middle-class and lower-income taxpayers worse off, as many programs that benefit them would be decreased or completely cut (such as Social Security, health care, and education). ((Id.)) Although Paul promises his plan will provide a large tax cut for everyone, it in fact seems like it will only benefit high earners and large businesses.
Paul justifies his plan by its ostensible fairness, and contends that fairness is a top goal for the American tax system. ((John Hewitt, Why Rand Paul’s Flat Tax Is a Bad Idea, INC. (June 25, 2015), http://www.inc.com/john-hewitt/flat-tax-bad-idea.html.)) According to the IRS, more than forty percent of lower-income Americans paid no taxes in 2014. ((Id.)) Though on its face this may seem unfair that lower earners do not pay taxes at all, one flat tax for all taxpayers wouldn’t improve fairness much either. It would hardly be fair to tax a single parent the same as a single childless adult, and Paul’s plan would act similarly to the current system and not tax the first fifty thousand dollars of income for a family of four. ((Id.))
A better rationale for Paul’s system would be simplicity. The current system is incredibly complex and with all of the brackets, deductions, and exemptions, lends itself to corruption. ((Steve Forbes, Flat Tax Revolution 21 (2005).)) In addition, the costs of complying with the current tax code, such as lost time and productivity, are massive. ((Id.)) From 2001 to 2010, there were at least 4,430 changes to the tax laws; Paul’s plan would get rid of these changes as well as what he sees as the other special-interest loopholes. ((Id.)) However, though the current system certainly has its problems, a flat tax rate would be worse.
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