Sen. Rand Paul (R-KY) plans to introduce legislation that would empower impoverished cities to break the chains of big government tax and regulatory policies that have prevented economic opportunities.
In a speech in the heart of Detroit, arguably the most financially troubled city in the country, Paul detailed the principles behind the legislation — The Economic Freedom Zone Act — and explained that the resilience and optimism of its residents and economic freedom are a way to break the stagnation in which they currently find themselves.
“Detroit’s future…will not come from Washington. The magic of Motown is here in the city,” Paul said on Friday at the Detroit Economic Club. “It’s not in some central planner’s notebook. What Detroit needs to thrive is not Washington’s domineering hand — but freedom from big government’s mastery.”
“To thrive, Detroit needs less government and more freedom — less red-tape, less punitive taxes, more money left in Detroit,” he said. “The answer to poverty and unemployment is not another government stimulus, it’s simply leaving more money in the hands of those who earned it.”
“These ‘freedom zones’ will dramatically reduce taxes and red-tape so that Detroit businesses can grow and thrive,” he explained, noting that the idea is similar to one proposed by the late Rep. Jack Kemp (R-KY). “This bill will lower personal and corporate income taxes in Detroit to 5%. My bill will also lower the payroll tax — 2% for the employees, 2% for the employers.”
Paul, a potential 2016 Republican presidential candidate, said that the economic freedom zones will also suspend the capital gains tax, which, he explained, keeps new and old businesses from prospering. His plan also calls for a tax deduction for small businesses investments in the first year of purchase. He contends that the suspension of the capital gains will encourage investment in business and real estate in the city.
He added later that economic freedom zones would also experience regulatory relief, including exemptions from onerous EPA rules that result in the loss of federal highway and transit funds and Davis-Bacon prevailing wage work requirements.
“How will this differ from a traditional government stimulus? Well, first, these zones don’t ask Houston, or they don’t ask Atlanta to bailout Detroit,” Paul said. “These zones free up Detroit to bail themselves out.”
Paul noted that the Economic Freedom Zones would apply to any city, county or zip code that has entered Chapter 9 bankruptcy, considered “at risk” of financial insolvency, has an unemployment rate of 1.5 times the national average, or in a state of “high poverty.” Detroit is an ideal location to unveil the proposal, given that a federal judge ruled last week that they city could move forward with its bankruptcy filing.
“There are 20 counties in the eastern part of [Kentucky] that are in a depression right now,” he noted. “So it’s not just Detroit struggling, we’re struggling in my state, too.”
The Kentucky senator said that these economic freedom zones would mean $1.3 billion of economic stimulus for Detroit in the next 10 years, none of which would come through government bailouts.
“It’s your money,” he said. “We’re not going to take it to Washington, we’re going to leave it to you,” noting that the economic benefits and growth would also provide more money for the city to pay for police and other services to citizens.
He also repeated calls for civil rights reforms, including school choice expansion and ending federal mandatory minimums for non-violent drug offenders, calling the latter a “human tragedy.”
“Economic freedom zones will remove government obstacles to success. They’ll provide a generation of citizens, students, workers, and job creators with a new bargain,” Paul said near the close of his speech.
“Your government will get out of the way. It will treat you like an adult. It will treat everyone equally under the law. It will help parents control their childrens’ future in their education. It will help creators have more jobs for more workers,” he said. “It will treat you the same way it treats everyone else, no matter the color of your skin or what part of town you come from.
“Washington has tried it the other way — excessive regulation, excessive taxation — it hasn’t worked. We’ll now try a new approach, he added.
Paul plans to introduce the legislation this week. The proposal is the latest from conservatives in Congress aimed at reducing poverty and make in-roads with poor and lower-middle class families. Last month, for example, Sen. Mike Lee outlined an agenda that would address the causes of social immobility and encourage community empowerment. Parts of Lee’s proposals have bipartisan support.