How sacrosanct are the mortgage and charitable deductions? Libertarian-leaning Sen. Rand Paul would preserve them in his otherwise bold tax reform plan unveiled Thursday.
The Republican presidential candidate from Kentucky asserts in a Wall Street Journal op-ed that the current tax code is too onerous to fix. So he would repeal the whole thing and replace it with what he calls a “fair and flat” structure that would levy businesses and individuals at all income levels with a 14.5 percent tax. Gone would be the myriad deductions taxpayers rely on to lower their burden under the current system. Eliminated as well would be payroll taxes (automatically deducted from every employee’s paycheck.)
But perhaps recognizing the political peril of messing with the home mortgage deduction that so many homeowners have built into their financial planning and property values, and the popularity of tax deductions for charitable giving among many religious voters and social conservatives, Paul’s plan “to eliminate all corporate welfare: no more subsidies or handouts” would leave those carve outs untouched.
“My tax plan would blow up the tax code and start over,” Paul wrote in the Journal.
Interestingly, Paul’s overhaul would create a new tax code that was somewhat progressive in nature. Under his plan, the first $50,000 in income earned by a family would not be taxed at all, and “low-income working families” would continue to be eligible for the earned-income tax credit, which is essentially a transfer payment to eligible families that comes from taxes paid by other taxpayers.
Paul is billing the plan as a $2 trillion tax cut.
“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,” he said.
