Though Republican presidential hopeful Rand Paul has come the closest so far, top flat tax scholar Dr. Alvin Rabushka detailed a tax plan Monday no candidate has matched.
“All the difficulty in interpreting things makes for tremendous complexities,” said Rabushka, a senior fellow at The Hoover Institution. “Part of the problem is it gets worse and worse.”
Rabushka, speaking at The Heritage Foundation, said the current tax system is too complicated, too costly and not fair. Instead, he argues, the country should switch to a system in which all taxpayers pay taxes at the same percentage rate. A system known as the flat tax. Rabushka has pioneered a flat tax system which focuses on consumption rather than investment.
“Tax policy discriminates against every single person by affording each individual different kinds and different amounts of deductions and exemptions and rates,” Rabushka argued. “So we have a tax code that is the very essence of discrimination.”
Rabushka also claimed the high rates in which many are taxed makes it much less likely for people to comply with the law.
“The higher the rate, the more likely you are to avoid and even evade and so one is legal and one isn’t and the line between the two is a very thin judicial decision,” Rabushka noted. “When you like to talk about 91 percent under Eisenhower, no one paid it.”
Paul has proposed a type of flat tax not entirely unlike what Rabushka urges. His “Fair and Flat Tax” is designed to cut more than $2 trillion in taxes by repealing the entire IRS tax code. It would eliminate individualized type taxes and set a 14.5 percent flat rate across the board. He did not detail why we choice 14.5 percent aside from it being lower then the current tax rate on most individuals and businesses.
There are at least some essential differences from Rabushka’s plan. Rand would tax certain things Rabushka has warned against, like capital gains. A tax on capital gains means the government will take from the money earned through investing in stocks, bonds or even property.
“I devised a 21st-century tax code that would establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest,” Paul detailed in his website.
Still, the 14.5 percent rate will be lower for many who pay capital gains. With the current law, according to the Internal Revenue Service, capital gains can range from 15 to 20 percent. It may be lower or even higher depending on income.
Fellow senator Ted Cruz and Former Gov. Mike Huckabee have been the only other major candidates to advocate for a flat tax though they have not yet detailed what their plan would entail. Back in 2000 Donald Trump said in his book “The America We Deserve” that the flat tax is unfair to the poor. Ben Carson, Carly Fiorina and Chris Christie have advocated for a simpler code but haven’t discussed how they’d do it. Sen. Marco Rubio wants to kill most exemptions and also lower taxes, the latter of which Gov. Scott Walker has advocated. Though Jeb Bush has not yet gotten specific, according to Politifact he has touted cutting billions in taxes while governor of Florida. Lindsey Graham, at odds with the other major Republican candidates, has advocated for higher taxes.
Out of the major candidates, presumptive Democratic nominee Hillary Clinton has been most at odds with Rabushka’s ideas. Though she has yet to released many details of her plan, a campaign official told The Wall Street Journal Monday that she will propose a higher tax on capital gains.
“Another priority must be reforming our tax code,” Hillary said during a speech last week. “Now, we hear Republican candidates talk a lot about tax reform. But take a good look at their plans. Well, that is a sure budget busting giveaway to the super wealthy, and that’s the kind of bad economics you are likely to hear from any of the candidates.”
“She couldn’t be more wrong,” Rabushka argued. “She’s talking about a high rate of tax on capital gains. Capital gains is a double tax … It’s a tax on after-taxed assets that have been distributed.”
The problem is, beyond people avoiding higher rates, that it may discourage investment. Investment is needed to move economic growth and technology forward. A higher tax could mean less of a chance for those benefits to be fully realized.
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