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Rand Paul’s flat tax

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. 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.

“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 said 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. Here’s a simplified example of what that means: Say a married couple with two kids makes $100,000 in wages and is allowed to exempt $35,000 for their standard deduction and $6,500 for each dependent. Their total exemption would be $48,000. So they would pay 17% on the remaining $52,000 of their income, or $8,840 in federal income taxes. That represents 8.84% of their gross income, which is their net effective tax rate. If the same couple made $200,000 in wages, they would owe $25,840 in taxes for an effective tax rate of 12.92%. But the overall effective rate could be lower still for high-income households because they are more likely to have investment income, which would be tax free under Paul’s guidelines.

Source: NY Times

One Comment

  1. blizzard blizzard

    While a simplification of the Tax code should be a top priority for Congress, Pauls flat tax rate seems more like political theatre than a viable policy option. Democrats would never agree to such a large tax cut, especially one that doesn’t place an increased tax burden on the wealthy. Furthermore, the mention of the IRS is a direct appeal to frustration over the recent prejudiced auditing of tea party organizations. No matter how simple or flat the tax rate, the IRS will always have a role to play because there will always be plenty of people who will not want to part with 17% of their hard earned money.

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