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CNN Moneyline: Rand Paul's hopes for a flat tax

By Jeanne Sahadi @CNNMoney March 31, 2014: 7:27 AM ET

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.

Read more: http://money.cnn.com/2014/03/31/pf/taxes/rand-paul-flat-tax/

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Argument for Flat Tax

Steve Forbes:

"One resists the invasion of armies; one does not resist the invasion of ideas" Victor Hugo

talking about tax is like

talking about tax w/o talking about printing money is like, well not talking

One day, I'm gonna' change my name to Dale Lee Paul

Asset concentration and flat tax/fairtax

One thing you need to deal with is the possibility that a flat tax/fairtax might greatly increase concentration of assets in the United States. Most supporters of Fairtax or a flat tax will claim that will not be the case. However, what if they are wrong?

According to Ed Wolff of NYU Department of Economics, the only group that has improved their financial situation the last 34 years have been the upper 1%-folks with at least $5 million in assets. The situation for the bottom 95%(folks with less than $1 million in assets) has gotten worse.

I would personally support fairtax or a flat tax only if there was a 100% ironclad guarentee that it would float all boats. IF the percent of Americans with zero asset increased or if the value of asset holdings of the upper 1% grew faster than the medium asset holdings I would propose a specific tax on the increase in capital holdings by the upper 1% that exceeds that of the median. This approach would not reduce the existing value of the holdings of the wealthy--but it would assure they would not get a huge windfall from a tax shift. This appraoch could be revenue neutral-if conditions warrented a shift to taxes on concentrated assets then the marginal tax rate could be reduced or the prebate increased. Again this would only happen if the rich as a group got a windfall during the tax shift.

I would be thrilled if fairtax works as its advocates claim it will and everyone is better off. However, I do not think it is reasonable to expect folks that are already on financial thin ice to be the ones to absorb the risk from this big of change in policy.

My Modified Flat Tax Got some Traction on Twitter Today

I supported Steve Forbes for president in 1996 & 2000 largely because of his endorsement of the flat tax which was modeled on the Dick Armey flat tax of 17% on earned income. That model eliminated tax on interest income, dividends, capital gains, estate tax and would eliminate all itemized deductions. It also didn't make any changes to the Social Security payroll tax.

For a variety of reasons I have come to believe that the Forbes/Armey flat tax is flawed. My modified version would tax all sources of income including earned income, interest income, dividends, capital gains, corporate income and estate tax at a low flat 10% rate with the following provisions. Virtually all itemized deductions would be eliminated except for the mortgage interest deduction which would be significantly reduced but not totally eliminated.

There would be a generous standard deduction such that a family of 4 earning $50K per year would only have to start paying the 10% rate on the first dollar of earned income over and above the $50K threshold.

Social Security payroll tax would go to 10% with employees paying 5% and employers paying 5%. The income ceiling that applies to the SS payroll tax (currently $113K) would be eliminated and benefits would be means tested for high income earners.

Capital gains, interest income, dividends, all would be taxed at 10%. Corporate income tax would go to 10% with no deductions so companies like GE and APPL could not get away with paying ZERO tax.

Death is a stiff undertaking, so the estate tax would also go down to 10% with an exemption for the first $5 million.

This is not a theoretically perfect tax plan but I designed it to sell to both the left and the right. Left wing progressive heads explode when they here FLAT TAX because they complain it is regressive. This objection is eliminated by getting rid of the income ceiling for the social security tax and means testing the benefits. Also when you consider that the first $50K of earned income is exempt from taxation for a family of 4 the argument can be made that this model is quite progressive.

On the issue of fairness, which is a favorite obsession with the left, it would seem unfair for some rich guy in the upper 1% of income earners, who earns all of his income from clipping coupons on treasury securities should pay no tax. Consequently, interest income would be taxed at 10% with no exemption for tax exempt securities which is how Romney only pays a 13-14% tax rate.

Importantly, this model is so simple that a 12 year old could calculate it on a 3X5 index card. No more need for an army of tax accountants and lawyers to game the system.

If you do the math, you will discover the regardless of how much income an individual earns he/she would at most be paying between 18.75-20% effective rate depending on the source of the income.

Not a bad deal and I think it would usher in an explosive period of economic growth.

Senator Paul - Are you listening?

Ed Rombach

Aside from my preferred 0% income tax...

…with no IRS, this is as good as I've seen from the flat-taxers.

One question: if it's 10% across the board, why an "18.75-20% effective rate"?

I'm all for a flat tax IF

everything is taxed, including stock purchases and other financial goods.

without doing so does put more of a burden % wise on lower and middle income families.

i.e. if everyone spent $500 a month on food, that $500 a month would be a much larger portion of the income of poor and middle class vs rich.

Put a flat tax on EVERY purchase, and it is a much better and more fair system. No matter what you buy, milk, eggs, stocks, islands, a flat tax all around (national sales tax).

As for a flat tax on income itself, we techincally already have that. Make 1-10k, taxed at x%, on additional income above 10k, make 10k-30k, taxed at x%, etc. So there is already equality here. if a poor person who one year only made 10k, they paid the same tax as a rich person on that first 10k the rich person earned. And if they were to earn more the following year, then they would again pay the same tax.

It is a graduated flat tax.

If you advocate for a flat tax, say 20% on every dollar earned from your first dollar to your billionth, then the poor and middle class would be hurt far more than the rich, to the point that we could nose dive back into a recession or worse.

it is one of those things that sounds great in principle, but in practice would hurt far too many people.

the flat tax should be on

the flat tax should be on everything except food and medical care. There should also be no flat tax on fuel unless the existing tax is done away with. I prefer NO TAXES.

I do not understand your argument about how the so called poor or middle class would be hurt. That sounds like class warfare to me.

I'm not talking about

class warfare, i'm talking about actual real life.

Let's take for example a family of 3 that makes 30k a year because they feel it's best to homeschool their children, so they make the sacrafice to earn less.

Under the current system, they are taxed only a little compared to those in higher brackets (remembering that even the rich pay the same % on their beginning income).

Now not having much money, this family spends 100% of the money they bring in after taxes. By imposing a flat nationwide sales tax (a consumption tax) this family is now pay tax on 100% of their income, vs a rich person paying sales tax on maybe 1-2% of their income. It decreases the purchasing power of the poor and middle income families, while increasing the purchasing power of rich families, who can most likely and would then, purchase anything they need in bulk, ruducing their total tax liability.

Flat taxes sound great. Everyone is taxed the same, but in reality, when you want to talk about class warfare, it would be a tool used by the rich to benefit themselves at the expense of the poor and middle class. This is just life.

Frankly i think our current tax system is fine just the way it is structured, now the ammount we are spending as a country, what we are spending it on, should be reduced, and as a result the tax brackets themselves should be lowered on a percentage basis.

It should be the role of the government to spend a little as possible, and thereby taxing the least ammount needed. But staggared tax brackets make sense, and a national sales tax would not.

To put it another way, poor people spend all their money, so 100% of their money is both taxed at the earning level (income tax) and at the purchasing level (sales tax, where appropriate). A rich person saves most of their money, invests it, and pays a smaller share through capital gains. In my opinion capital gains should be taxed as income, because it is NEW income, but that is a debate for another time. But the point being, taxes hurt the poor far more than they hurt the rich, because they see the impact on a daily basis, and a flat tax would serve only one purpose, and that would be to tax lower and middle income families more.

Gotta stand with RON on this one: 0% preferably 10% max

http://www.dailypaul.com/212212/wsj-economist-ron-pauls-0-in...

“I lean toward a flat tax. But I want to make it real flat, like zero.”
–Ron Paul, Jay Leno show, Oct. 31, 2007.

"Ron Paul Suggests 10% Flat Tax to Opt-Out of Federal Govt Programs"
Link: http://www.truthistreason.net/ron-paul-suggests-10-flat-tax-...

"Hence, naturally enough, my symbol for Hell is something like the bureaucracy of a police state or the office of a thoroughly nasty business concern." ~~C.S. Lewis
Love won! Deliverance from Tyranny is on the way! Col. 2:13-15

yep; here's the video, at 1:05mark:

he has no idea, but Dr. Ronald Ernest Paul, is the KING of econ 1liner zingers!

no embedding .o/

Ending the IRS: Mike Huckabee vs. Ron Paul
ronpaulreporter
Uploaded on Nov 27, 2007
You decide.

Predictions in due Time...
http://www.youtube.com/watch?v=zGDisyWkIBM

"Let it not be said that no one cared, that no one objected once it's realized that our liberties and wealth are in jeopardy." - Dr. Ronald Ernest Paul

So, how do you end taxation?

You can't do it like they implemented it; all in one go. However, you can kill it slowly much like the SCOTUS is trying to do to many of our rights. (This is not a constitutional discussion so bear with me)

1) Implement a flat tax that brings in as much or a little more than the current system does. All politicians are happy because it makes people happy and they still have money to waste.

2) Wait for party in power to need votes and suggest a modest cut to taxes. Party in power is happy because they get brownie points and party not in power has to vote for tax cut to avoid getting hammered.

3) Repeat step 2 for many election cycles while making sure the tax never goes back up.

4) In time the income tax will be trivial and effectively eliminated. The last act of good will to be squeezed out of it for political gain will be to eliminate it.

5) Celebrate victory

The income tax as it is today is like a hydra. You cannot kill it by conventional means; e.g. passing a law/repealing an amendment to kill it. There is no magic bullet that will destroy this tax because most people believe it is a necessity for some reason or another and will actually fight against killing it. HOWEVER, people always always ALWAYS love a tax cut so you can slowly starve the beast to death. Eventually we have a pure win.

STIMULUS

Let's try a year of NO taxes.

Instead of printing 800+ billion dollars to "Bailout" banks and insurance companies let's eliminate taxes
and see what happens to the economy.

I think I would spend more.

Rand is a Neocon

Wake up.

Rand is a Neocon?

I had my suspicions that Rand was flirting with the Neocons in connection with the Ukraine issue, but why would you say that he is a Neocon for embracing a flat tax?

Ed Rombach

Three major Republican presidential candidates want to replace

all or part of the byzantine federal tax code with a "flat tax" that collects a fixed percentage of one's income, with no brackets and few exemptions.
http://articles.latimes.com/2011/oct/25/opinion/la-ed-taxes-...

Sales tax(fair tax), no income tax, no VAT tax.

Unless.. it's a 0% flat tax.

Flat tax is great for all those who don't understand the...

"Constitutional Requirement" for taxes being Apportioned.

Please go back to your constitutional study class, and stop supporting ideas based on "High school popularity contests".

____

"Take hold of the future or the future will take hold of you." -- Patrick Dixon

Our taxes are apportioned

and equal.

Example.

Everyone who makes up to 10k is taxed at 1x %

ANYONE who makes money more than 10k, is still taxed at 1x% for the first 10k, and 2x% at the second 10k, 3x% at the third, etc.

The only thing preventing a poor person from being taxed at a higher rate is their income, but both a poor person and a rich person are taxed at the same rate on the base income.

Think of it this way.

let's say I make 1 million a year.

I am taxed at teh following

10% on my first 15k = $1,500
20% on my next 60k (total income at this point 75k)= $12,000
30% on my next 300k (total income at this point is 375k) = $90,000
50% on my next 500k (total income at this point is 875k) = $250,000
60% on my remainder (125k to make 1 million) = $75,000

Total tax bill $427,000.

Vs Poor Person making 17k a year.

10% on first 15k = $1,500
20$ on next 2k (total 17k) = $400

total tax bill $1,900

They are both treated fairly and equal, the only difference is the ending salary. (this is all figured prior to tax breaks, loopholes, etc).

Anyone in a higher tax bracket will still make more money than those below them. So many people think that because a rich person is taxed at 50%, that means they are taxed at 50% on their ENTIRE income, and this is not true.

A graduated tax is a way for society to fairly tax everyone, without hurting those on the bottom.

Now one could argue that we should reduce the tax rates in each bracket, and that's fine and I think we should and lower our spending over all, but moving away from the graduated system will hurt everyone but those on the top.

Rand could learn a lot from his dad who said "I would end the...

...federal income tax and replace it with...NOTHING!"

Instead, cut out all the illegal mischief the government does like:

Foreign aid,

Funding for the Arts,

Wars, invasions, occupations and interventions,

Welfare on top of welfare,

Phase out entitlements (but keep the obligations to those the government stole from all their lives),

Get out of the IMF, World Bank, U.N. etc

Abolish Departments like Education, Commerce, HUD, Energy etc

and on and on...

Then we wouldn't need ANY federal income tax.

"We have allowed our nation to be over-taxed, over-regulated, and overrun by bureaucrats. The founders would be ashamed of us for what we are putting up with."
-Ron Paul

"THIS" is a flat tax:

Your tax bill = Total spending divided by Population

I would think the appetite for wasteful and unconstitutional government programs would shrink up real fast if we paid taxes like that.

Another thing that would help, is if you HAD to pay your taxes in a lump sum at the end of the year. You get your full paycheck throughout the year, and then at the end you write one big fat check. Then people would at least realize what taxes are, government taking YOUR money...and the qty paid would be very transparent.

Taxes are complicated for a reason. If it was simple and everyone understood it, everyone would be pissed. Hard to be pissed at something that's complicated and you don't understand.

That would be about 12666 per person

Just in case you were wondering.

Yup - I can imagine how fast the love of big government would crash hard when a family of four suddenly realizes their fair share is 50000.00!!!!

As for writing one check at the end of the year. No need - quarterly is just fine - as a matter of fact - I just mailed mine today. My wife never paid attention to politics until about that third or fourth estimated check I asked her to write. She flat out gets pissed now. That is what happens when you believe your money is yours and then you have to give it away versus believe it is not yours and they give it back to you.

I have said it before will repeat it now. If everyone was paid on a 1099 - you would have an all out revolution in six months - exactly coinciding with that second quarterly payment.

yep.

yep.

yep.

yep.

and yep.

Fair Tax


I've always liked the idea of just having a sales tax system on the things that you buy.

To make it progressive, you just exempt the basic life necessities things such as food and water.

That way, if you buy a lot of stuff (i.e., you're rich), then you pay a lot of taxes.
But if you buy little (other than food), then you pay very little taxes.

It's totally fair.

You also eliminate the 400,000 pages of paperwork garbage that you have to file, and worksheets, and receipts, and lawyers, and accountants. All that goes away, and you get your free time back again.

And since your paycheck has no taxes taken out, having higher sale tax rates are not a burden --- as everybody has more money in their pocket to work with.

--

This system would be progressive, fair, simple, and efficient.


It would, however, make all

It would, however, make all business owners de facto tax collectors, and I suspect more susceptible to intrusive audits.

Truth is

rich people really don't buy a lot. I mean think about it, they buy food just like us, maybe a bit more pricey, but you only buy too much. Houses are already paid, perhaps a new car here or there, but mostly used and collectable. Services they employ, most most services are not taxable (sales tax), so for the most part rich people probably spend less per year than average middle class folks.

Now the one thing they do buy is financial products.

Put a tax on stock trading, and then I think it would be fair.

why not put a sales tax on stocks?

National sales tax of say 5% (much higher in most states) on stocks and you'd stop the quick in and out of the market, and benefit society as a whole.

Fair Tax


I've always liked the idea of just having a sales tax system on the things that you buy.

To make it progressive, you just exempt the basic life necessities things such as food and water.

That way, if you buy a lot of stuff (i.e., you're rich), then you pay a lot of taxes.
But if you buy little (other than food), then you pay very little taxes.

It's totally fair.

You also eliminate the 400,000 pages of paperwork garbage that you have to file, and worksheets, and receipts, and lawyers, and accountants. All that goes away, and you get your free time back again.

And since your paycheck has no taxes taken out, having higher sale tax rates are not a burden --- as everybody has more money in their pocket to work with.

--

This system would be progressive, fair, simple, and efficient.


No flat tax without repeal of the sixteenth amendment!

Without repeal we become the European Union with a tax on income AND a flat tax or, as they term it, VAT (value added tax).

Don't be so naive as to think the govt. would not take advantage of both!

I like it

It's a step in the right direction.

Hey...don't we have to pay some tax to pay off all of this debt that we have?

bigmikedude's picture

"the rate would not be higher than 17%"

...Until the democrats controlled both houses again with a few more war-money desperate, occupy-other-country-happy republicans, or the government needed yet even more money (the latter which is guaranteed).

And in one vote, our "flat tax" would go from 17% to 47%.

Bad idea. Looking to the future and considering politics' history, it would wind up far far far worse than what we have now, and only a fool would want his name on opening that door.

It's no different than what

It's no different than what we have now. With one vote, the current income tax laws can be changed just as easily. So I'm not sure why that's an argument against the flat tax.