Tuesday, May 3, 2011

Polishing Ron Paul's 10% Solution

Ron Paul has been out lately promoting a 10% solution. Basically, what this means is that you are given the option of "opting out of the system" and in return you pay a flat 10% of your income.

Now, some people, like MSNBC's Ed Shultz, have derided Paul because their small minds can't comprehend what Paul my actually mean. Though, to be fair, I'm not sure Ron Paul is sure what he means. He admitted it was a rhetorical question, I think more in the vein of a thought experiment than actual workable policy. So, let's clean it up.

First, specify that it is an option to opt out of the welfare/entitlement system. This means no direct subsidies to that person. They would still have access to public roads, Mr. Schultz, because that's paid for through the gas tax. CIA, FBI, FDA, military would still apply to this person because they are still paying taxes.

Second, we have to untangle these entitlements out of this person's life. Entitlement taxes are no longer withheld and all employer tax contributions are now captured by the employer, immediately raising their income.

Third, the taxpayer has the option of opting out of their employer's health insurance package and capturing that value for their income. This is because these benefits only exist because of federal tax policy.

The combined effect of two and three would dramatically raise income. In my own personal experience, the combined loss to income from federal withholdings and taxpayer subsidized employer health insurance was just shy of 30%. A giant bite.

Fourth, the 10% tax bill would come with no deduction. No business deductions, charitable deductions, home mortgage interest deduction, etc.. Reducing a tax bill to zero would exacerbate the debt problem, so you would have to pay.

Fifth, we would need a comprehensive immigrant work visa program to make up for any revenue shortfall, especially in the short term with baby boomers retiring. Unlimited work visas with the "opt out" option already attached. Immigrants would work, pay 10%, and receive nothing.

There is probably a lot of stuff I'm missing but I think this would be a good start. It's definitely something I would do.

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