Interview: Rick Santorum Discusses His New Tax Plan

(Des Moines, IA) Former U.S. Senator Rick Santorum met with Caffeinated Thoughts last Wednesday and spent a half an hour at Smokey Row Coffee discussing what makes his tax plan unique, as well as, his focus on the American worker, and how he would address spending cuts, entitlement reforms and monetary policy.

Watch the interview below:

Read the transcript below:

Shane Vander Hart: Thanks for meeting with me Senator Santorum.

Rick Santorum: Thank you very much Shane.

Vander Hart: You just released a tax policy.

Santorum: Yes.

Vander Hart: I wanted to ask you, how does this differ from some other plans, what makes yours unique?

Santorum: Well let me see, number one, it is incredibly pro-growth. I think other candidates plans have similar growth numbers, but ours differentiates in a couple of significant ways.  Number one, it is the most fiscally responsible. in other words if you look at the fact we are going to peel pretty much all of the deductions, all of the exemptions, everything goes away.

We lower rates, which is what everyone always talks about doing, lower rates, get rid of the complexity, stimulate growth, and do it in a way that doesn’t explode the budget deficit. Which is really a big concern to many Republicans, including me. By getting rid of Obamacare taxes and Obamacare in conjunction with this actually over a ten-year period of time according to the Tax Foundation actually is revenue positive. It actually generates more revenue because of the tremendous growth it creates. It generates positive revenue so it is fiscally responsible, none of the other plans are even close.  I mean Trump, Jindal explode the deficit right from the start like a trillion dollars a year in increased deficits.

The big differentiators – ours is really strongly pro-manufacturing.

Vander Hart: Ok

Santorum: Our corporate provisions allow for full expensing which is very important for manufacturing. We have a repatriation provision which allows previously untaxed money which is sitting overseas into this country to be invested primarily by manufacturers in manufacturing, and we provide a two-year transition for all manufacturers where the first year there is a zero corporate tax, the 2nd year ten percent, the third year up to 20 percent like everybody else. 

So we provide a great incentive for taking that money from overseas and taking that money back here and investing it so they can use it profitably here in America.

Finally, it is very pro-family. We take the tax code which has over time has reduced the amount of support that the code provided for children and ramped it right back up to a very strong level. We have a 20% flat rate, but instead of the standard deduction we have a per-person tax credit. So every person in the family gets a $2750 tax credit so a family of four would have an $11,000 tax credit.

I’ll tell you what that means, that means the first $11,000 you owe in taxes you don’t have to pay. So if you are a $50,000 wage earner, your tax is 20 percent which is $10,000, but your tax credit is $11,000. So you would get the $10,000 that you paid in your withholding back and you get a $1000 check from the government. It is a refundable tax credit.

So that is number one, so we treat, unlike the previous tax code, we treat adults the same as children. Children get the same $2750 tax credit as adults do. In addition, we have the child credit. So we keep the child credit and the per person credit. So it is a very, very strong pro-family approach.

The other two things we have done, the other two provisions we keep… we explode the code, the current tax code and all one million words of it which is actually more than the Bible, and we replace it with these two credits and two deductions. One deduction is on charitable, unlike before where two-thirds of Americans couldn’t deduct their charitable contributions now everyone can.

So it allows for deductibility of all charitable contributions and second it allows for deductibility of home interest so that’s…

Vander Hart: Is there any cap on that?  I’ve seen some other plans…

Santorum: A $25,000 cap so I’ll give you an idea. If you went out and bought an $800,000 home you would be fine. If you bought something over $800,000 you are going to be limited to only $25,000 in interest so just giving you an idea of what that would be.

Vander Hart: Does your plan touch payroll taxes at all?

Santorum:  We don’t touch payroll taxes, we get rid of Alternative Minimum Tax, we get rid of, again, all of the special provisions in the income tax code.  We get rid of deductibility of state and local taxes. Because we think that is… I think that is a subsidy for the high tax states.

Vander Hart: Right…

Santorum: …on low tax states. With the corporate tax we get rid of every special tax provision. I know a lot of folks here in Iowa say, “oh the oil industry gets the oil depletion allowance.” No more. No depreciation schedules, no amortization schedules, everything is expensed. So whether you are a corn grower or an ethanol producer or an oil producer you expense everything you spend producing that inventory. So it is a very powerful tool for production and it treats all industries the same.

Vander Hart: Ok, 20 percent, how did you get to that number?

Santorum: We came to that number looking at the fact that America, historically, has spent, historically since World War, has spent between 18 and 22 percent of GDP on government. The sweet spot that most Republicans focus on is that 18 percent because that is the lowest level we have been at during the post-war time. In thinking about how am I going to get to 18 percent of the GDP because most people think that is what is going to constrain government well if you have the tax below 18 percent you are not going to get to 18 percent if you have any deductions or any credits or anything like that. If we have 19 percent well, again, if we are going to make sure that lower income families are not going to be paying more taxes than they pay now.  It is the combination of finding the low-enough rate to make sure we weren’t going to increase taxes on folks today who are not paying, who are not paying federal taxes or are not paying much in federal taxes. So it was a combination of looking at what we needed to fund the government and, at the same time, not increase taxes on poorer folks.

Vander Hart: There is a certain campaign, that should go nameless, but I’ll actually name it – the Huckabee campaign they are pushing the Fair Tax. Why not the Fair Tax?

Santorum: If I were starting all over in 1916 and say before the income tax was around and say we needed a tax system that was the most efficient way to collect revenue and didn’t incentivize spending and incentivized earnings and investment then a sales tax, a national sales tax, a value-added tax, Fair Tax, whatever you want to call it – all of those things would be on the table.   The problem is we have an income tax and we have a 16th Amendment that allows for an income tax. If we get rid of the income tax and replace it with a sales tax the income tax is still there to come back. I have absolutely no doubt, zero doubt, that if we do a sales tax the argument is going to be made at some point, “well the rich are not paying there fair share” because the sales tax is on everybody.

Vander Hart: You don’t have faith in Congress that they will do the right thing and not bring it back?

Santorum: I have faith that the next Democratic administration will say we only need an income tax on the wealthiest to make sure that it is being treated fairly. That they are paying their fair share. Which is exactly how the income tax was sold back in the 19-teens – that it was only going to be on the wealthiest Americans, well we now know how that turned out.

So what I think would happen with the Fair Tax – we would have a Fair Tax and an income tax, and I know a lot of the Fair Tax people say, “Well, we are going to repeal the 16th Amendment.

Vander Hart: Easier said than done?

Santorum: Repealing the income tax is going to be a very, very difficult thing to do. There are a lot of states that simply will not go along with it, and the process would be a long one. I am looking for a tax plan that approximates the idea of the Fair Tax, and that is a flat tax – a flat tax with very limited deductions is in a sense almost the same thing as a Fair Tax sales tax except it taxes all income including the wealthy.

If you go with a sales tax, the wealthy do not use as much of their money on spending, they invest it.

Vander Hart: Right.

Santorum: So they are going to spend a lot, lot less under a sales tax than they would under the income tax. So this is in a sense a fair tax, but taxing higher-income people more than what a sales tax would.

Vander Hart: This campaign you’ve focused on working-class Americans, blue collar conservatives,  you’ve put forth, you look at a minimum wage increase that’s not necessarily a popular idea with people I have talked with… Why not leave that to the states?

Santorum: Well this is what I would say… one of the things that I have learned in the process of working in Washington is if you want to get big ideas passed you are going to have to work together to get those passed. You are going to have to find some people on the other side of the aisle that will join you in getting your big ideas done, whether it is welfare reform where we got a whole bunch of Democrats to join us, whether it is on some of our national security measures where I got a whole bunch of Democrats to join us. These are things that conservatives now say are some of the greatest victories we have ever had, but they had things in there that conservatives if they knew were in there would say “why would you support that?” Well, that was necessarily in order to get the things that you really like, and you know what that word is called?

Vander Hart: Compromise

Santorum: Compromise, and here is what I learned – there are good compromises and bad compromises. Good compromises is getting less of a good thing. Bad compromises is negotiating away less of a bad thing. It’s still a bad thing, you don’t do it, but if you can get a good thing done by doing some things that maybe make it less good, but still good you do it.

So part of the whole idea of going out and talking about a pro-worker, pro-manufacturing plan is you have to look at things that will help bring people who agree with that idea and there are many Democrats who are from manufacturing states who would love to support something that would increase wages, create opportunities for people to make things here in America – Senators from Ohio and Michigan and Indiana and places like that. You need to look at things like the minimum wage, and you say well “that’s not a conservative principle,” well neither is tax credits for businesses.

Vander Hart: Right

Santorum: But we do that, and I don’t know too many Republicans who have a problem with that. We have an R&D tax credit and every Republican I know, “oh we support the R&D tax credit!” Wait a minute? That isn’t conservative economics.

“But it helps businesses, it helps growth!” Oh it’s ok for the federal government to get involved to help a business, but it’s not ok for them to provide some minimum standard for workers, and that’s the tone deaf. That’s why, and again, Republicans don’t even understand this.  It doesn’t penetrate. That is why they think you care more about business than you care about workers because when it comes to anything that provides some sort of help and assistance for workers – “it’s bad for the economy, it’s going to hurt this, it’s going to hurt that.” If it is for a business – “oh it’s good for the economy because it is going to help business.” We’ve seen bailouts, we have seen Republicans involved in a whole bunch of things, a lot of them, bailouts certainly, I was not involved in.

But then they do something like increase the minimum wage by 15% then suddenly we become Adam Smith we say, “Well no, the invisible hand we shouldn’t be involved in any of this.” If you do that it just proves the point to folks who are working Americans that you care more about these folks than you do about me.

What I’m proposing is not like a minimum wage like what Obama is proposing. I would absolutely vote against something like that I’d never sign something like that, but less than one percent of Americans make the minimum wage.

Vander Hart: Right

Santorum: So in a sense we really don’t have a minimum wage here in America.

Vander Hart: So for our readers who may not be aware of what your minimum wage plan is.

Santorum: It is 50 cents an hour per year for three years.

Vander Hart: Ok

Santorum: So it is taking the minimum wage from $7.25 to $8.75 a hour over a three year period of time.

Vander Hart: So states can obviously do more if they want.

Santorum: States have done more, that is one of the reasons that no one is making the minimum wage anymore. Most states have already raised the minimum wage. So the idea to have a federal minimum wage that is truly a minimum wage if less than one percent of workers are making minimum wage, it is not a minimum wage anymore. I mean it’s hitting the floor, and so historically the federal minimum wage has ranged between 5 and 9 percent of all wage earners. My increase would put it to about 4 to 5 percent so it would still be below the historical average, but it is something to put in your plan, to put in a vision that says we understand that the workers need to have protections just like businesses need to have opportunities. So that’s number one.

Here is another controversy – the Export-Import Bank. I am a supporter of the Export-Import Bank, and the reason I am is because I believe the role of the federal government is create a level playing field for our businesses to be able to compete with other businesses around the world, particularly when it comes to manufacturing which is a globally competitive marketplace. Ok, 62 other countries have export financing. The United States is one of the smallest, is the smallest of the major exporters, yet it is absolutely critical for some of our major projects to get that export financing.

We’ve seen since the ExIm bank has been shut down that we’ve lost thousands of jobs already.  Here is the interesting thing, those jobs went overseas. They were actually moved. The company that was bidding on those projects for workers here in America are still getting the bid, but they are using workers from other countries. So the idea that this is corporate welfare, well if it were corporate welfare GE would be hurt, but GE isn’t hurt. Who is hurt are the workers in South Carolina who lost their jobs, the workers in Texas who lost their jobs.

That is what people don’t understand, if you don’t have the same tools in the shed, particularly since Dodd-Frank banks aren’t lending because of the liability that Dodd-Frank imposes on them. Banks aren’t lending for this type of financing for export products. So it is going to hurt American workers, and according to, I guess it depends on who you believe I guess, some say it costs a little money, most of the folks who look at this say the Export-Import Bank actually makes money. So it is not adding to the deficit. It is providing a necessary tool, and again it is consistent with the message. I want to make America the number one manufacturer in the world. I want to make sure we have jobs here in this country that employe people, and if you put things like that in a package that says we are going to be the number one manufacturer all of a sudden you have got folks on the other side of the aisle that says, “You know what? He’s trying to actually reach out and pull people together to get something done to move this country forward.

Vander Hart: Have you seen any movement among those who may not be friends to a Republican or respond to your message?

Santorum: Obviously I just introduced this a couple of days ago.

Laughter

Vander Hart: Well you have been talking about Blue Collar Conservatives…

Santorum: I can tell you this that when I go on shows like MSNBC, I constantly get “look you are for the American worker.” They concede it. “Look, I understand you are not like the other guys you actually care about American workers.” You start to get that concession then you start to open up opportunities. So that answer is, look I wrote a book called Blue Collar Conservatives, I had a very famous Democratic politician, who will go nameless because it wouldn’t help me if you knew who he was, call me after the book came out said he read an article that said “this is the smartest thing a Republican has written in 35 years.”

He said, “if you do this, if you run your campaign on this,” he said, “this is exactly what America needs.”

Vander Hart: I know several people who are members of unions who hold 2nd Amendment rights, they are prolife, but consistently…

Santorum: Vote against Republicans

Vander Hart: …vote against Republicans.

Santorum: I was doing this book tour last year and I was in New York, and I was in the waiting room at Fox waiting to do the Hannity Show, and a guy was sitting there and said, “hey saw your book and heard you talking on the radio earlier today. I really love what you are doing.” He said his best friend is a Crane operator in New York and he is in a union right. I’m talking about cranes, the big high-rise cranes…

Vander Hart: Yeah, yeah…

Santorum: Not a job I’d want, let me put it that way.  Do you know how much he makes in a year? I don’t know… $150,000, New York – $200,000. $350,000 a year.

Vander Hart: Wow.

Santorum: I said “a crane operator?” He said, “yeah with overtime and everything.”

Vander Hart: I’m not sure that’s enough for me to get on a crane.

Santorum: He said, “He makes $350,000 and you know what? He’ll never vote Republican.” I said, “why?” He said, “You don’t care about guys like him.”

I said, “Really?” He said, “Yep he would say you want to take his job away.”

I said, “well, ok.” I said, “ Well, show him this book.”  He said, “No that is why I want to show him this book. It would be great if we have Republicans who were for working men and women.”

Vander Hart: Right, shifting gears a little bit, still looking at economics obviously tax policy is part of the package, but what are you going to do to rein in government spending?

Santorum: First we are going to get rid of Obamacare.

Vander Hart: Ok

Santorum: That is the number one entitlement that goes away. Number two we need to apply the principles I have talked about with welfare reform to all other entitlement programs – food stamps, housing programs, Medicaid and the like. There needs to be an idea that government assistance programs are there for two reasons: number one to support you when you fall. Look, we all have problems, whether it is divorce, whether it is a child unexpected out of wedlock, whether it is an accident.  There are all sorts of reasons people may end up needing some sort of government help. I think most Americans are very, very open to that and want to be kind and I think, hopefully, most Republicans feel that way too that there needs to be a safety net. That’s a good thing in America, that is not a bad thing.  Republicans don’t see safety nets as a bad thing.

Vander Hart: Right.

Santorum: The second purpose is to help transition you back to earned success. Arthur Brooks wrote a book about the key to happiness in America. The key to happiness in our human psyche is earned success – the idea you can provide for yourself and your family and have satisfaction of accomplishment that leads to true happiness in that.  Not having success that is earned whether you are a trust fund kid or whether you are someone who has grown up on welfare that doesn’t give you the satisfaction that leads to true happiness.

Whether you have lots of money that you didn’t make or you have very little money where someone basically helps you to survive. Neither leads to happiness, and it is actually accomplishing something, working hard, doing what is necessary to be successful that leads to that happiness. That has to be the focus of these entitlement programs, and that is why I believe you can put work requirements and time limits on all of these entitlement programs. Obviously if you have a disability and can’t work that is a different story, but once you get past that we have to have these programs not be places that insulate people from what the real key to happiness is.

I don’t look at it like this is a punishment, it is a privilege to be able to work. To be able to work and do – use your hands, use your head to do something – to have the opportunity to take whatever experience you have and turn that into a better job all of that is what America is all about. It is the opportunity to climb that ladder to earn success and to pursue your dreams.  We are not helping people by not putting them on that path. So that is number one with those programs as we saw with welfare if you can take say food stamps – block grant it and cap the money.

What we did with welfare, it was it was an all-time high.  We took the welfare money, block granted it to the states. We cut it by 10 percent because it was already high.  Food stamps should be at the same situation where we can cut them by at least 10 percent, block grant it to the states, make them have a work requirement and a time limit on the program and let them deal with it.

What happened with welfare reform? The rolls were cut by 50 percent in three years. Poverty level went down. Employment among the most hard to employ went up.  All of those things work and we have to believe in those things as Republicans and point to the success that previous programs have done. That’s one.

The other big knots as you know are Medicare and Social Security.

Vander Hart: Right

Santorum: You have probably heard me talk about this many, many times.

Vander Hart: I have yes.

Santorum: We need to move to a defined amount of money we are going to spend on Medicare, as opposed to the current system which is indefinite. I always ask people, how much money are we going to spend on Medicare? People look at me like…

Vander Hart: They have no idea.

Santorum: They have no idea. You know what? Nobody else does either. They can guess, but they don’t know. Why? Because it is an uncapped entitlement program. In other words whatever the medical bills are that seniors purchase that is how much Medicare costs. That is no way to run a healthcare system it is just an unlimited amount of however much people spend.

Vander Hart: So in a perfect world, if you could do whatever you wanted…

Santorum: We’d take the amount of money we spend on Medicare and divide it up per person and give them a subsidy. Say, “Here is the amount of money we are going to give you, go out and we’ll have the insurance market offer a variety of different insurance products to you.  You pick the product that serves you best, and you know what? If it is a really expensive product then you are going to have to pay more for it. If it is a less expensive product you may even save money, you may take some money home, you may not use it all on that.” It says to seniors we are going to put the power in your hands, we are going to give you choices and plans that you want, and we are going to have a private market where competition will drive down costs and increase efficiency.

So that is called a premium support model which is something that I have supported for a dozen or more years.

Vander Hart: What would the transition to that look like?

Santorum: I would say to seniors, particularly seniors who are older seniors we would say you don’t have to move into that system, you could stay with the system you have right now. I don’t know of anybody under 70-years-of-age who hasn’t had to deal with making health care choices and health insurance decisions. I mean we all have. You do. Everybody does now. Twenty years ago that wasn’t the case, but today, particularly under Obamacare everybody has to make these healthcare decisions.

I remember when we talked about this premium support model the Democrats would say, “people can’t make these decisions on their own government knows best to make these decision. They can’t make these decisions.” Well now we see that they can and they will.  That’s not to say too many elderly seniors because not all seniors are elderly in my mind.  You are on social security at 62, you are not elderly.

My mom is going to be 97 this month, she’s elderly, and I’m not going to tell her she has to change her Medicare policy right?

Vander Hart: Right.

Santorum: For younger seniors we are going to transition them over to that new system, and of course, everyone coming in after that.

Social Security is another issue I could go over all the details with you too…

Vander Hart: Yes basically you are talking about raising the eligibility age.

Santorum: The eligibility age will go up with life expectancy. The life expectancy of Americans goes up about a month every two years. So raise the eligibility age consistent with life expectancy so every future generation of seniors will have the same amount of time on Social Security as the previous generation. That is what makes it fair. If you don’t do it that way then future generations are on longer we don’t see more money which means younger generations are going to have to pay more for when they get there. They are going to be on longer then receive more money. Then every generation is going to have to pay more for when they get there.  Every generation is going to end up paying more and more and more that’s just not a sustainable system.

Vander Hart: One last question along the lines of economic policy. I rarely hear anybody talk about monetary policy, but the Fed is really screwing things up. What do you think we can do to fix this?

Santorum:  Here is the problem with monetary policy and the Fed is really screwing things up is that most people don’t see it because.. I was going to say because something hasn’t hit the fan.

Vander Hart: (Laughter)

Santorum: The water hasn’t hit the dam. Ok? We don’t really know how this policy is going to work as it unwinds. I think what we’ve seen is that Fed policy has been to the great benefit of asset holders, stock purchasers… Markets are up and everything from the stock market to the real estate market because we’ve had this robust quantitative easing burst and now the low interest rate policies of the Fed, but savers have not done well. Folks who are just ordinary consumers, if you will, you see food prices and other prices higher than they really need to be because the Fed is fixated on making sure we have a stable rate of inflation, and we have these extraordinary low interest rates.

Vander Hart: What about the state of our dollar, it’s…

Santorum: Well again if you look at the dollar today, the dollar is actually relatively strong and it is not because of anything the Fed has done. It is how bad everything else is… It is the land of the blind and the blindman is king. All of that, to my point, can come crumbling – the dollar, inflation, and a whole host of other things. When economic growth reaches a point where you start to put pressure on wages, pressure on prices, all of a sudden then interest rates come up, the cost of borrowing of the federal government comes up which means it will explode. All of a sudden you have an economic crisis simply because the economy is growing the way it should grow. So in a sense what the Fed has done is artificially clamped down the economy, and here is the problem… I went to a.. well now he is a former Fed governor… a couple of years ago who is sort of a noted contrarian. You probably know who I am talking about.  I asked him, “Look, I just need to talk to you, how do you guys unwind this? I mean you wound this thing pretty tight, how are you going to unwind?”

“We don’t know.”

Vander Hart: Oh gosh.

Santorum: “What do you mean you don’t know?”

“Well, there are lots of theories, but it has never been done before, and so we don’t know.”

Which is one of the reasons he was so much against winding it this tight and as high as it went. So the answer is they can say, “well, we’ve been greatly successful and haven’t had nearly the recession and really this… ,” but we haven’t paid the price yet and we don’t know when that price is going to be paid, and so it is sort of a scary thought to think about what robust growth would mean to this country when it comes to our monetary policy.

Vander Hart: Thank you so much.

Santorum: You bet.