This blog is part of a series of "Policy Explainers" for the 2016 presidential election, where we explain some of the candidates' policy proposals that affect the federal budget.
Republican Presidential candidate Senator Rand Paul (R-KY) recently released his Fair and Flat Tax Plan. His plan would dramatically overhaul the tax code by eliminating most preferences and replacing existing income taxes with a 14.5 percent flat tax for individuals, businesses, and investments. He would also eliminate other taxes including payroll taxes, estate taxes, and tariffs. Two outside groups have evaluated the costs of his plan, finding a wide range of revenue losses between $1.8 trillion and $15 trillion.
Individual Income Tax Reform
On the individual side, the 14.5 percent flat tax would apply to wages, salaries, dividends, capital gains, rents, and interest. The plan would maintain the mortgage interest deduction, charitable deduction, the Earned Income Tax Credit, and the Child Tax Credit. It would increase the standard deduction and dependent exemption in such a way that a family of four would not be taxed on its first $50,000 of income (up from $28,600 now). By providing one flat rate of 14.5 percent, taxpayers currently in the 15 percent bracket would only see a very small reduction in their marginal rates, while the rates of the highest income individuals would fall by over 25 points.