Carly Fiorina’s Three-Page Tax Plan

“Big government has created a big business called politics,” Carly Fiorina declared during Tuesday night’s Republican primary debate.

She recommended five steps to reduce the size of government and “really get this economy going again”: zero-based budgeting, instead of giving government agencies automatic spending increases every year; passing the Raines Act to shift power away from unaccountable bureaucrats to Congress; holding a top-to-bottom review of all regulations so we can roll many of them back; holding government officials accountable for their performance; and reforming the tax code.

Fiorina’s suggestion for reforming the tax code was the most dramatic of the points she raised. As she did at the previous debate, she called for a three-page tax code to replace the current convoluted mess. “Yes, there are plans that would reform our tax code to three pages,” she assured the audience.

During the debate, Fiorina’s Facebook page rolled out just such a tax code. “Our tax code is 73,000 pages,” she said of the current system. “The weight and complexity of it are crushing everyday Americans, 59 percent of whom now have to hire a professional to help them with their taxes. It is also crushing the small and family-owned businesses that create two-thirds of our new jobs.”

Fiorina said that her alternative would “move from revenue-neutral to revenue-reducing tax reform, because the federal government spends far too much money.” This is a crucial point that cannot be restated often enough. One of the biggest problems with our government is that it’s ridiculously over-funded.

Washington is swimming in money. It scarcely notices anything less than nine figures of waste or fraud. It has virtually no incentive to run more efficiently – on the contrary, every agency’s top priority is to portray itself as under-funded. Worst of all, Big Government pours its ocean of money into mission creep and social engineering, aggressively turning our own dollars against us as weapons to defend its turf and make itself larger.

We will never see a glimpse of real efficiency or accountability from this bloated government until we radically slash its budget… and then you’ll be amazed at how quickly under-performing and corrupt bureaucrats are cashed out, instead of being given paid vacations as “punishment” on the rare occasions when they get caught.

Fiorina presented the 3-page Hall-Rabushka tax plan from the Hoover Institution as a model, although it’s not clear this is The Fiorina Plan in all of its details, or if she intends to present a modified version as her final proposal. Sometimes candidates are reluctant to put such finalized proposals on the table, because they’re relentlessly attacked – it’s never hard to find a chorus of analysts who loudly declare any significant tax reform proposal is unworkable or will “blow up the deficit,” concerns which are never expressed when Democrat socialists propose their latest trillion-dollar spending binges with unicorn-fart funding.

However, as Senators Rand Paul and Ted Cruz have also put forward flat-tax proposals, and Ben Carson has advocated a flat tax in more general terms, there will be demands for Fiorina to discuss how her proposal differs from theirs, which means she’ll have to get behind something solid – whether it’s Hall-Rabushka as written, or a modified version. One advantage to using this existing plan is that it’s been around for decades, so Fiorina would be able to prepare herself to defend it by studying the criticisms that have been lodged against it.

The Hall-Rabushka model presented on Fiorina’s Facebook page is indeed three pages long. The version Fiorina posted is the 1995 revision, so the dollar figures are presumably in need of updating. The plan itself specifies that the personal allowances are meant to rise based on the Consumer Price Index each year. (This could very well lead to the public running out of patience with the government fudging the Consumer Price Index.)

For individuals, the plan totals up compensation, subtracts the personal allowance, and levies a 19 percent tax on whatever remains. The 1995 figure for personal allowance was $9,500 for single filers, $14,00 for single head of household, or $16,500 for married taxpayers filing jointly. An additional $4,500 is provided for each dependent.

Businesses also pay 19 percent under Hall-Rabushka, on its “business receipts less the cost of business inputs, less compensation paid to employees, and less the cost of capital equipment, structures, and land.” Businesses are allowed to carry forward losses, expressed as negative taxable income, to offset positive taxes in future years.

State and local government agencies, along with “Educational, religious, charitable, philanthropic, cultural, and community service organizations that do not return income to individual and corporate owners” are exempted from taxation.

In a noteworthy difference from some other flat tax proposals, the Hall-Rabushka plan does not eliminate paycheck withholding. One benefit touted by flat tax proponents is that tax returns would become extremely simple – “file your taxes on a postcard” is a common promise – but everyone would be required to file those taxes on a regular basis, instead of having the money quietly withheld from their paychecks.  It is thought this would focus the public mind upon taxes and government spending. However, the plan advanced on Fiorina’s Facebook page has employers calculating income above the employee’s standard allowance on each paycheck, and withholding 19 percent of taxable income.

By way of comparison, Ted Cruz’ flat tax is 10 percent on income, with a standard deduction of $10,000 and a $4,000 personal exemption, totaling $36,000 for a family of four. Cruz keeps the Child Tax Credit, Earned Income Tax Credit, and existing deductions for charitable contributions and mortgage interest payments.

Rand Paul’s flat tax is 14.5 percent, on both individuals and businesses, pointedly eliminating payroll taxes. His proposed exemptions are higher than in the Cruz or Hall-Rabushka plans, working out to $50,000 for a family of four. Paul also keeps the Earned Income Tax Credit for low-income families.

It’s likely that Cruz and Paul would both cite the venerable Hall-Rabushka model as an inspiration or building block for their own proposals, so it seems likely Fiorina will also be asked how she would update it and contrast her ideas with those offered by the two senators. She’ll also want to hone her version of their argument that such a dramatic tax reduction and simplification would not “blow up the deficit,” in part because government spending would be reduced, and in part because of the enormous growth surge tax reform would bring to this over-burdened economy. The flat tax proponents should also be ready to dissect the reforms offered by other candidates who don’t favor such a tax.

Let us hope all can agree that the tired old argument about how nothing can ever change, and the survival of the nation depends on having a 70,000 page tax code with thousands of special-interest breaks plus social engineering carrots and sticks, should be retired forever. This is a time of possibilities.