Flat tax makes 2016 comeback

By Bernie Becker – 04/20/15

URL of the Original Posting Site: http://thehill.com/policy/finance/239303-flat-tax-makes-2016-comeback

Sens. Ted Cruz (R-Texas) and Rand Paul (R-Ky.) have both floated an across-the-board tax rate as they’ve launched their 2016 presidential bids. Neither Cruz nor Paul has spelled out the exact details of their plan, but both senators clearly see the flat tax as a way to appeal to both free-market conservatives that advocate for broad-based tax cuts, and the Tea Party sympathizers concerned with government intrusion.

“Moving to a simple flat tax and just padlocking the IRS — I think that is a powerful populist issue,” Cruz said Friday on “The Adam Carolla Show.”

But moving the government to a single tax rate — a plan popularized by Steve Forbes almost 20 years ago — also has its share of critics on the right, underscoring the debate within the GOP about how to best craft economic policy. On top of that, a Republican presidential candidate who pushes for a flat tax could have difficulty selling that plan to the broader electorate, should they win the GOP nomination.

Mitt Romney, for instance, released a second tax plan after his rivals for the 2012 GOP nomination rolled out more aggressive proposals — only to be hammered in his race against President Obama as seeking to raise deficits and shift the tax burden toward the middle-class.

“When you look at the polling data, I don’t think there’s an untapped demand for a tax code that would lower top tax rates for wealthy Americans to a level they haven’t been in a century,” said Jim Pethokoukis of the conservative American Enterprise Institute, who believes Republicans need to do more than promote tax cuts for the rich.

Cruz has said that he’s currently developing the particulars of his tax plan, which he expects to release in the coming months.

When he launched his campaign this month, Paul explicitly called for a 17 percent across-the-board tax rate, an idea he had talked about for months. But the Kentucky Republican has since scrubbed his website of those sorts of details, and a spokesman for Paul told The Hill that the candidate’s tax plan “will be released in the next few weeks.” The spokesman, Sergio Gor, declined to say whether Paul’s plan would be a flat tax. But Stephen Moore of the Heritage Foundation told a Chicago radio station recently that he was working on such a proposal with the senator.

The two candidates’ push for a flat tax allows them to capitalize on the growing conservative anger at the IRS. But it also shows the enduring popularity of supply-side economics among Republicans three decades after President Reagan was in office. “This is almost theological among Republican primary voters,” said Howard Gleckman of the Tax Policy Center, a joint venture of the left-leaning Brookings Institution and Urban Institute. “They really do think this is the only way to reform the tax code.”

Back in the 2012 campaign, upstart GOP candidates like Herman Cain and former Speaker Newt Gingrich (R-Ga.) latched on to the flat tax as they sought to gain traction in the race, while former Gov. Rick Perry (R) of Texas turned to the flat tax as he sought to revive a flagging campaign. Paul and Cruz, on the other hand, are viewed as potential top-tier candidates in the 2016 field.

Supporters say a flat tax would be much simpler, thus saving taxpayers many of the some 6 billion hours they currently spend complying with the tax code. But advocates also insist that a flat tax would give a spark to the economy by drastically reducing the top marginal tax rates and giving people more incentive to save and invest.

“The flat tax is absolutely crucial to turbo charging our molasses-like economy,” Forbes said at a Heritage Foundation event last month.

For those reasons and more, tax analysts say they expect other GOP candidates in the 2016 race to at least propose slashing the top rate for individuals and businesses, especially after conservative critics have dinged the tax plan of Sen. Marco Rubio, another presidential candidate. Rubio (R-Fla.) and Sen. Mike Lee (R-Utah) have proposed reducing the top individual rate from 39.6 percent to 35 percent, while seeking to boost incentives for families.

The two senators also call for a lower corporate rate and rolling back taxes on estates and capital gains. But Rubio has been put on the defensive by charges from the right that he is seeking, among other things, “to buy middle-class votes.”

Gleckman said that one issue for Republican candidates will be figuring out what to pair with tax plans calling for cuts at the high end. Candidates could choose to shift more of the tax burden toward the middle-class to limit the impact on the deficit, or decide to cut taxes for almost everyone, he said. Pethokoukis echoed those concerns, and has added that a flat tax plan that focused solely on economic growth could leave behind many middle-class families.

But he also maintained that the differences were probably overstated between the Rubio plan that deviates somewhat from GOP convention and the flat tax proposals. “There doesn’t need to be this huge split,” he said. “All these candidates are going to be talking about cutting taxes.”