By Deanna C. White
Despite his decisive second-place finish in the New Hampshire primary and his strong third-place showing in the Iowa caucus, there are still some political pundits who question whether Ron Paul, who was initially a middle-of-the pack candidate, is a viable contender for the GOP presidential nomination.
But there is one fact no one is disputing these days – with his ascension in the first two Republican contests, Texas Congressman Ron Paul finds himself firmly ensconced at the center of the GOP debate.
Now, future primary voters and Paul's fellow candidates, as well as many financial and accounting professionals who could ultimately be impacted by any tax reform plan wrapped up into the GOP 2012 presidential platform, are taking renewed interest in Paul's "Plan to Restore America" federal government spending, tax, and reform "blueprint."
"There are definitely things in this plan that are interesting", said Larry Evans, Tax Partner, Tax Technical Resource Leader, Eide Bailly LLP in Oklahoma City, Oklahoma. "If you could achieve all these components with all the controls in place, then there are ideas in here that people would definitely enjoy. The idea of America getting back in control of its financial house is very appealing to many people."
According to Paul's official campaign website, his Restore America plan would revive the country's flagging economy by reforming the current tax code. Paul says the plan would also restore the federal government to "its former Constitutionally-limited, smaller-government, and less-burdensome place" through massive spending cuts over the first three years of a possible Paul presidency.
As stated on Paul's website, the tax component of the Plan to Restore America includes the following measures:
- Repeal capital gains taxes and taxes on dividends.
- Extend all Bush-era tax cuts.
- Abolish the death tax.
- End taxes on personal savings, thus "allowing families to build a nest egg."
- Assist struggling students and families by eliminating taxes on tips.
- Let Americans claim more tax credits and deductions, including those on educational costs, alternative energy vehicles, and health care.
- Take a "first step" toward eliminating the requirement that senior citizens include Social Security benefits on their gross income tax by repealing the 1993 increase in taxes on Social Security.
- Lower the corporate tax rate to 15 percent from the current 35 percent.
- Allow American companies to repatriate capital without additional taxation to spur the economy.
Paul has often been tagged with the "zero income tax" moniker, but many financial analysts say the Restore America plan actually allows Paul to take a step back from the more radical flat tax or fair tax ledge that some of his fellow candidates, most notably Herman Cain, teetered on early in the election.
"If you just look at his plan right now, it's not a flat tax or a fair tax. It adjusts what we have right now and suggests that's the direction he may someday pursue. He's basically just laying out a realistic, basic plan on taxes", Evans said.
In a statement on his website regarding taxes, Paul says he would support a Liberty Amendment to the Constitution to abolish income and death taxes, and he believes a flat tax or fair tax would be a better alternative to the income system, but only if the Sixteenth Amendment was repealed to "avoid having both the income tax and one of these systems as an additional tax."
Evans said two points included in Paul's tax reform plan do peak his interest in particular: Paul's suggestions to index the alternative minimum tax (AMT) and to eliminate taxes on personal savings. (Read the entire Plan to Restore America.)
Evans said indexing the AMT, an extra tax some people have to pay on top of regular income tax, could potentially be a "big deal" for many CPAs and their clients. The original idea behind the AMT was to prevent people with very high incomes from using special tax benefits to pay little or no taxes, but over the years, Evans said, the "net keeps getting larger and larger", and more people than originally intended to be affected by the tax are "getting captured by it."
Evans also questions how eliminating taxes on personal investment interest might affect the municipal bond market and the state and municipal entities that the bond market serves.
"I think you have to ask whether this will place state and local entities that fund many of their projects through interest-free municipal bonds at the same financial status as everyone else", Evans said. "If tax on interest is eliminated on private investment, an investor will begin to look at the credit worthiness of government bonds vs. other investments because the tax rates would not make a difference. I think it surely will have some effect on the marketplace."
Ultimately, however, the most ambitious component of Paul's plan, Evans said, may lie in his plan to reduce government spending.
Under Paul's plan, he would cut $1 trillion in federal spending during the first year of his presidency, and he promises to balance the budget by the third year of his presidency. Paul says the $1 trillion in cuts would be achieved by eliminating the Department of Energy and the Department of Education, abolishing the Transportation Security Administration (TSA) and returning responsibility for security to private property owners, abolishing corporate subsidies, stopping foreign aid, ending foreign wars, and returning most other spending to 2006 levels.
It's a proposal that many of his fellow candidates, most notably Newt Gingrich and Herman Cain (who is no longer in the race) have railed against as politically unfeasible and publically unpalatable.
But many financial analysts, like Evans, say Paul is doing a service by at least injecting the topic of significant budget cuts into the Republican presidential debate.
"There are some painful financial things that need to be done to the budget to regain financial stability in this country", Evans said. "From a strictly financial sense, [we have] more going out than coming in, and somehow [we have] to gather the right formula to [fix that]. At least Ron Paul has laid it out there. It's not a bad item to keep in the discussion."