Sen. Rand Paul says he wants to "blow up" the U.S. tax code. But his newly unveiled plan would keep two of the most well-known deductions in the system in the equivalent of a budget bomb shelter.
Called "The Fair and Flat Tax," the center of Paul's plan is a 14.5 percent flat-tax rate that would be applied to all personal income including wages, salaries, dividends, capital gains, rents, and interest. In addition, Paul said the first $50,000 of income for a family of four would not be taxed and low-income working families will receive and retain the earned-income tax credit. Paul's plan doesn't mention low-income single adults or single adults with a dependent.
Paul also says his plan would eliminate all deductions in the tax code. But, importantly, it leaves in place those for home mortgages and charitable deductions. Last year, the Joint Committee on Taxation estimated the deduction for home mortgage interest on owner-occupied homes cost the U.S. Treasury $67.8 billion in revenue for 2014.
The committee estimated that the deduction for charitable donations to educational institutions cost $6 billion, while charitable donations for health organizations cost $3 billion, and deductions for donations to other organizations cost $34.8 billion for 2014.
These are not insignificant numbers, and they clock in at more than $100 billion in costs altogether. The Bipartisan Policy Center has named both of these deductions as among the 10 largest individual tax expenditures.
But the home mortgage interest is also popular, including with Republicans. Ronald Reagan himself promised he would protect the deduction in the tax-reform plan he eventually signed in 1986.
In the 2012 presidential race, President Obama's campaign said the only way Mitt Romney could pay for the tax cuts he was proposing was by getting rid of the deduction. Romney's running mate in the race, Rep. Paul Ryan, said their plan had "plenty of fiscal room" to keep provisions for families buying a home or charitable donations.
Paul's campaign officials did not return a request for comment about why the two particular deductions were kept. But while the senator from Kentucky is talking about dismantling the system, it appears he is also trying to avoid political land mines.