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Rick Santorum's plan to 'explode' the tax code

This is a rush transcript from "Your World," October 9, 2015. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: Well, Rick Santorum, the latest presidential candidate to come out with a plan I guess a lot of people are saying is the anti- Trump plan. By that, he says it will not explode the deficit, as some numbers-crunchers allege that Mr. Trump's tax plan will do.

It calls for a 20 percent flat tax. It calls for keeping charitable deductions, put a slight limit on mortgage deductions.

But why don't I have its author explain?

Senator Rick Santorum, good to have you.

RICK SANTORUM, R-PRESIDENTIAL CANDIDATE: Thank you. Thanks, Neil. It's good to be on your show.

And, yes, this is a plan that doesn't say you're fired. It says you're hired. This is a plan that is going to actually grow the economy, and not grow the deficit. That...

(CROSSTALK)

CAVUTO: How do you know it's not going to grow the deficit? Twenty percent is pretty low.

SANTORUM: Well, yes, but it's a 20 percent tax on individuals, 20 percent on corporations, 20 percent on capital gains. So, dividends, interest, all is taxed -- income is taxed as 20 percent.

CAVUTO: I see.

SANTORUM: And we get rid of all the...

(CROSSTALK)

CAVUTO: For everybody, for everybody, the same rate for everybody?

SANTORUM: For everything -- same rate for everybody. Doesn't matter the source, the way you take your income, whether it's through capital gains or whatever. It's all taxed at 20 percent.

What we do is, we get rid of all the special interest tax provisions that lower the effective rate. On the corporate side, again, everything is gone, but you can expense everything. That's going to even a very powerful incentive, particularly for capital-intensive industries, like manufacturing.

CAVUTO: So, but everybody pays? Bottom line, Senator, I want to be clear.  Everybody pays.

(CROSSTALK)

SANTORUM: Everybody pays.

CAVUTO: The rap against Donald Trump's plan is that 75 million additional households would not pay. They would be at a zero percent rate.

He comes back -- and I will get his sense of this tomorrow when I talk to him -- but he comes back and says, well, we need a progressive tax system.  Those a little higher up the food chain in terms of income should pay more.  What do you say to that?

SANTORUM: Well, I would say, first off, everyone, just like we have a standard deduction now, we change that standard deduction and we get rid of the standard deduction for individuals, and we turn it into a tax credit per individual. And it doesn't phase out.

So, it's $2,750 per person. So, a family of four is $11,000. Just to give an idea, that means, in the first $55,000 income you earn, you're not going to pay any -- if you're a family of four, you are not going to pay income taxes. Above that rate, depending on whether you have a charitable deduction or whether you have a home interest, you are going to pay a 20 percent tax on every other dollar above that.

So there's a carve-out, just like there is in the current tax code, for lower-income people not having to pay income taxes. But we treat everybody the same after that. It's 20 percent.

CAVUTO: All right, but you do kind of pare back the mortgage interest deduction.

SANTORUM: We do, $25,000 cap.

CAVUTO: Up to $25,000.

SANTORUM: Right.

CAVUTO: So, the housing industry is going to come on you like a ton of you know what. Are you ready for that?

SANTORUM: Well, we also get rid of -- we also get rid of the deductibility of state and local taxes.

And, again, the idea there is, number one, you don't want to subsidize high-tax states by low-tax states. And on the housing side, a $25,000 cap covers the vast, vast, vast, vast majority of homeowners in America. So you may have some millionaires and billionaires who have very high-priced homes or second homes who are not going to get -- who are not going to get that mortgage deduction, but it's not going to have an appreciable effect on the housing market.

CAVUTO: Do you think tax plans should be revenue-neutral? Rand Paul says, no, the idea is to shrink government. He doesn't care if they're revenue- neutral.

SANTORUM: Yes, well, mine is revenue-neutral under a dynamic scoring model, because we repeal all the ObamaCare taxes and ObamaCare.

In fact, if you repeal ObamaCare...

CAVUTO: Dynamic means that the revenue that you're going to generate off of the cuts.

SANTORUM: That's correct.

And according to the Tax Foundation, if we throw in the repeal of ObamaCare and all of its subsidies, this actually is about a $600 billion increase in revenue, if you will, because of some of the government cuts. If you just leave it on a tax basis, it's about a trillion dollars more in tax reductions than there is in -- I guess there might be some, a few tax increases somewhere in there.

But we're looking at -- we're looking at a very pro-growth plan. We're looking at a plan that gets rid of that -- a lot of -- again, all of the corporate welfare. And it focuses on creating jobs.

CAVUTO: OK.

SANTORUM: I mean, this is going to increase growth by 1 percent a year over 10 years, over three million net new jobs created.

I mean, we're going to explode the code. The old tax code is gone. This is a very simple code that, on corporate, on individual, on capital gains, you're talking about a half-a-page to be able to fill out a tax form, very simple, very effective, and very pro-growth.

CAVUTO: We will look it and crunch it.

Thank you, Senator. Good seeing you again.

SANTORUM: My pleasure. Thank you, Neil.

CAVUTO: Rick Santorum.

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