Rand Paul’s proposal of Economic Freedom Zones for reduced taxes and regulations where unemployment is 150% of the national average

Rand Paul proposed legislation creating what he calls Economic Freedom Zones which would see federal income and corporate taxes cut to 5%, and federal payroll taxes reduced to 2% for employers and employees. This would be for areas like Detroit. He proposes reducing federal taxes and regulations in zip codes with unemployment greater than 1 ½ times the national average.

This is a variation of the Special Economic Development zones that worked well in lifting the Chinese economy.

Six pages detail more specifics.

Eligible areas of the country, whether a city , county, or even zip code, may have the opportunity
to utilize the provisions of this plan for a period of 10 years, starting from the date of eligibility.
1. Any city, county, or municipality that has officially entered Chapter 9 bankruptcy proceedings,
2. Any city, county, or municipality that is “at risk” of bankruptcy or financial insolvency,
3. Any city, county, or municipality that meets an economic threshold of 1.5 times the national unemployment rate, or:
a. At least 30 percent of the residents have incomes below the national poverty level; or
b. 70 percent of the residents have incomes below 80 percent of the median income of the local government.
4. Any city, county, or municipality located in a state deemed “high poverty” and that meets an economic threshold of 1.25 times the national unemployment rate, or:
a. At least 25 percent of the residents have incomes below the national poverty level; or
b. 65 percent of the residents have incomes below 80 percent of the median income of the local government.

Promoting Job Creation by Reducing Taxes
a. Reduce the Individual Income tax to a single, flat rate of 5 percent.
The individual income tax rate not only taxes individual wage earners, but also taxes small businesses. More than 75 percent of small businesses are organized as pass – through entities (businesses which pass along income directly to the individual, thus get taxed at the individual income tax rates). According to the Tax Foundation, small businesses organized as sole proprietorships in states like Kentucky and Michigan have a top marginal tax rate above 45 percent; in California as high as 52 percent

ii. A lower tax rate provided to Economic Freedom Zone areas
will significantly encourage business expansion.

b. Reduce the Corporate Income tax to a single, flat rate of 5 percent.
The U.S. corporate income tax rate is among the highest in the world. Countries like Spain, the United Kingdom, and Switzerland have tax rates at 30 percent or less – and one of our largest international competitors, China, has a corporate tax rate of just 25 percent

iii. Even our closest neighbor, Canada, is outcompeting us with a tax rate of only 15 percent

iv. We need to allow U.S. business to better compete internationally , and reducing the corporate rate from the current 35 percent to a low rate of five percent for businesses in economic ally depressed areas will allow those businesses to expand and compete globally.

c. Reduce the payroll tax by 2 percent for the employer, and 2 percent for the employee.
There is an oft – cited document by the Congressional Joint Committee on Taxation highlighting the statistic that 47 percent of all U.S. households pay no federal income tax. This fact is true, but is not the entire story. All workers still pay the federal payroll tax–and for many of these households, it is their largest tax liability. In order to encourage employers to hire more employees in blighted areas we should allow the employer to reduce the amount of payroll tax they pay per employee. In addition, allowing low-to-middle-income families to keep more of their hard earned money will help increase their standard-of-living.

d.Double the amount of 100 percent expensing through Section 179 expensing.
Section 179 of the tax code allows businesses to deduct 100 percent of the purchase price for qualifying equipment and other goods. Currently, Section 179 places a limit on the amount that can be fully expensed in the first year. Economic Freedom Zones would double the amount available in 2013.

This will allow all small and medium-sized businesses to fully deduct most investments in the first year of purchase.
Such provisions will incentivize businesses to increase investment in equipment and machinery that will increase productivity of the area.

e. Suspend the capital gains tax.
This proposal allows any individual that owns stock or tangible assets that are located within the areas deemed
“Economic Freedom Zones” to reduce their long -term capital gains tax rate to zero. This will reduce capital costs and encourage greater investment in business and real estate in these areas.

Educational Enhancements to Improve Local Opportunities and Workforce
a. Provide states with Title I portability for Economic Freedom Zone areas.
b. Educational Tax Credit to Parents and Guardians
c. Special Economic Freedom Zone Visa.

Reducing the Regulatory Burden on Cities
a. Suspend EPA non-attainment designations in areas eligible for EFZ status
b. Provide municipalities the option to waive certain land use restrictions resulting from federal land designations.
c. Exempt municipalities from the Municipal Separate Storm Sewer Systems (MS4) requirements
d. Streamline the National Environmental Policy Act (NEPA)

Encouraging Community Assistance and Rebuilding
a. Suspend expensive Davis-Bacon prevailing wage work requirements.
b. Economic Freedom Zone charitable tax credit

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