November 2015

A Pro-American Tax Plan 

By John Hendrickson

Steve Forbes, publisher of Forbes and a former Republican presidential candidate who championed the flat tax, wrote that several Republicans currently contending for the presidential nomination have “put forth a serious plan for drastically changing the federal income tax code in ways that would be an enormous stimulant for economic growth.”1 “Former Senator Rick Santorum and Senator Rand Paul have both unveiled serious flat-tax proposals,” stated Forbes.2 In addition, former Arkansas Governor Mike Huckabee is campaigning “to replace the income and payroll tax with a national sales tax [Fair Tax] of 30 percent.”3

Former Pennsylvania Senator Rick Santorum, who won the Iowa caucuses in 2012 and authored Blue Collar Conservatives: Recommitting to an America That Works, has stood out for his tax plan, not just because of its impact on economic growth, but also because it is a pro-American plan. The Santorum plan is rooted in policies that historically worked. In The Wall Street Journal article outlining his tax reform plan, Santorum describes the problem confronting the American economy today:

Since 2007, 15,000 American factories have shut down and more than two million manufacturing jobs have been lost. Wages have flatlined; American families are struggling. In every recovery since 1960, real GDP grew by four percent a year…The Obama-Biden policies have resulted in a paltry 2.3 percent annual growth since the recession ended in 2009. This growth gap has cost the country $5.4 trillion in lost economic output and 5.5 million fewer jobs than would have been expected during a normal recovery.4

In order to reverse the current economic malaise Senator Santorum proposes “The 20/20 Flat Tax: A Clear Vision For America,” which calls for individuals to “pay a simple, low 20 percent individual rate that will be applied to all streams of income.”5 “It eliminates the marriage penalty, death tax and alternative minimum tax. It will treat every American the same. No longer will savings and investment be penalized,” explains Santorum.6 Some further details of the plan include:

Individuals will receive a $2,750 credit, which will replace the standard deduction and personal exemption. The credit will be refundable and replace the Earned Income Tax Credit. The child tax credit will remain. For low and middle-income workers, the provision will shield much of their basic wages from federal income taxes. They can keep more of what they earn.7

The 20/20 plan is also pro-business as it will “replace the current corporate income tax rate of 39.1 percent,” which is one of the highest rates in the world economy.8 As Santorum explains:

An initial zero percent tax rate on American manufacturers, phasing up to 20 percent over two years, will help make American the number one manufacturer in the world again. Companies will be allowed to deduct 100 percent of their capital costs in the first year. Full expensing will eliminate complicated depreciation schedules and encourage investment in new plants and equipment. To encourage companies to bring revenues home and reinvest the $2.1 trillion in profits that have been parked overseas, my plan calls for a low 10 percent rate on business income that is repatriated.9

Senator Santorum, along with other Republican candidates such as Governor Mike Huckabee and Businessman Donald Trump, has addressed what is becoming the 21st century version of the “forgotten man” — the middle-class worker who has suffered tremendously in the recent economy. All of these candidates are demonstrating that Republicans can connect with middle-class voters who once made up the Nixon-Reagan coalition. These candidates all share a goal of creating a strong middle class based on resurrecting manufacturing and achieving this goal through tax, spending, and regulatory reform, but also securing trade deals that place America first.

Senator Santorum’s ideas behind his 20/20 flat tax proposal and his desire to make the United States a manufacturing leader that will provide strong wages for the middle class, along with his limited-government philosophy are characteristic of the philosophy that governed President Calvin Coolidge and Ronald Reagan, who both ushered in periods of strong economic growth.

John R. Hendrickson is a Research Analyst at Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation. They are brought to you in interest of a better-informed citizenry.

Endnotes:

1Steve Forbes, “GOP Unrest: Great Good Will Follow,” Forbes, October 14, 2015, <http://www.forbes.com/sites/steveforbes/2015/10/14/gop-unrest-great-good-will-follow/> accessed on October 20, 2015.

2Ibid.

3Ibid.

4Rick Santorum, “A Flat Tax Is the Best Path to Prosperity,” The Wall Street Journal, October 11, 2015, <http://www.wsj.com/articles/a-flat-tax-is-the-best-path-to-prosperity-1444600639> accessed on October 14, 2015.

5Ibid.

6Ibid.

7Ibid.

8Ibid.

9Ibid.