Senator Rand Paul (R-Ky) is considered by many to be the most outspoken defendant of free-market capitalism in the U.S. Senate. A son of former Texas Congressman Ron Paul, the Republican Kentucky senator is a strong advocate of auditing the U.S. Federal Reserve and has drawn both praise and criticism for his minimalist stance on U.S. military and foreign intervention.
For the print debut of The Alpha Pages, Senator Paul talked to us on a wide range of topics, including the rise of Bitcoin, his fight to audit the Federal Reserve, his views on the ongoing Iraq crisis and if and when he might announce intentions to run for President in 2016.
There’s a conventional wisdom that the “victims” of high frequency trading are small investors and that the markets are rigged. Some would maintain that high frequency trading is just an example of technology being developed to its fullest capacity and makes for more efficient markets.
Where do you fall in this thought spectrum?
Paul: I would say that I’m not for most regulation of trade, other than rules that would involve prohibitions against fraud and deceit, and some that promote greater transparency. For the most part, we are adults trading in the market, and we need to be people who are going to buy or beware.
Minnesota-based medical-device maker Medtronic recently purchased Covidien for $42.9 billion. The company will now relocate its operations overseas to reduce its tax burden. What do you think is responsible for the record number of corporate inversions since 2012?
Paul: I blame the tax code and those who wrote the tax code. I’m on the Senate Permanent Subcommittee on Investigations that Senators Levin and McCain brought in Apple executives to read them the Riot Act, make them swear under oath, and chastise them for maximizing profit and minimizing taxes for their stockholders.
During that hearing, I said, “If you want to see the root of the problems, rather than bringing Apple in, we should’ve brought a big mirror,” so Congress could look in the mirror. The problem arose from legislators who wrote a crummy tax code. The problem arose from having a corporate tax rate that is twice what Canada’s is and nearly three times what it is in Ireland. Money goes where it is welcomed, and money has been flowing overseas. I don’t fault corporations for doing what they’re supposed to do, which is to maximize their profit.
I have been beating the drums for repatriation and want to do it again. I have considerable momentum on both the Republican and Democrat sides of the Senate aisle.
If we don’t do it, Medtronic and Pfizer are examples of what will continue to happen. We received a list of about 44 different companies that have done these inversions. And every day you wait, every month you wait, every year you wait, for some holy grail of tax reform, many more companies will do what is in their best interest, and that’s to minimize taxes.
It really offended me when the Senate brought in Caterpillar as well.
I said, “Look, instead of chastising Caterpillar for making money overseas – instead of reading them the Riot Act – you should be giving them a medal for staying in business for nearly 90 years, having 55,000 employees, and paying hundreds of millions in taxes in the United States.”
I’m a big believer the sooner we do repatriation, the better. My personal preference would be a repatriation tax rate of about 5 to 5.25%.
In some high-tax states, when you combine local, state, and Federal taxes, plus property, sales, social security, and Medicare and other hidden compulsory taxes and fees, many Americans (particularly C-Corp entrepreneurs) are now paying up to, if not more than, 50% of their annual income to governments. What should be the maximum amount of taxation?
Paul: The tax rates in this country are obviously far too high. We have some of the highest tax rates in the world, and we’re seeing the results firsthand. Citizens are leaving the country at astonishing rates, and companies like Pfizer, Medtronic, and countless others are leaving the country for lower tax jurisdictions. We are going to pay a large economic price if we don’t implement a more competitive tax code.
For starters, we should all agree to allow businesses that earned revenues overseas to repatriate that capital to the U.S. at a low rate. Some estimates suggest there is as much as $2 trillion overseas waiting to come home. Second, we should have a simple and efficient flat tax system with one low rate.
The federal government ran an annual deficit of $436 billion last fiscal year. Is there any urgency by either party to rein in federal borrowing or deficits?
Paul: Unfortunately, no. There should be some urgency with a $17 trillion debt, and since I’ve been here, we’ve averaged almost $1 trillion deficits a year.
It’s come down a little, but there should be more urgency.
What are your thoughts on plans by the Federal Reserve to taper stimulus plans and eventually raise interest rates?
Paul: The main thing is — from a historic perspective – we ought to ask the question: Are we proud of an agency that has lost 96% of the value of the thing the Fed is supposed to protect? Would that be a success or a failure?
Have we had more or less upheaval, greater or fewer panics or crashes since the Federal Reserve or before the Federal Reserve? There is an objective argument that we did have problems before the Federal Reserve… but we still continue to have problems with the Federal Reserve.
The fundamental question about the Federal Reserve and monetary policy in general that we should ask is, “How important is it that the market should decide prices?”
If you ask most free-market economists, they’d say, “Absolutely. The price of bread, the price of computers, the price of labor, all that should be free and open to the marketplace.”
However, their one inconsistency is they think interest rates should be set by government.
It’s amazing that so many people who favor free markets and free pricing support a completely centralized, completely arbitrary setting of the price of money. This led to the great housing bubble and the great housing crash.
In a normal marketplace, as things began to heat up and you had more builders and more people borrowing money, as the demand rose for money, so would the price in the form of interest rates. The rising price of money would slow down the economy, and you’d have a reversal.
But you wouldn’t get to a point where you reached insane levels of housing prices, where people were doubling and tripling their house’s price every year or two. The craziness of that doesn’t happen under capitalism. It doesn’t happen under a free-pricing mechanism.
The debate we ought to have in this country is: Should the price of money be arbitrarily decided by one central authority? Or should the price of money be decided by a marketplace?
Do you believe the Federal Reserve is done with its stimulus efforts when QE3 ends?
Paul: I try to take them at their word that their goal is not to do another round of easing. But, if they see a slowdown in the economy, or if we continue to see a trend of negative growth like in the first quarter, I think they’ll be scared out of their wits, and they’ll start blowing money back into the economy.
What potential measures do you fear the central bank and the Treasury Department would take in the event of another financial or debt crisis?
Paul: The economy remains structurally fragile. Since the financial crisis, the government ran trillion-dollar deficits, with a great deal of assistance by the Fed’s quantitative easing policy. Interest rates have remained drastically low for a prolonged period. We bailed out Wall Street and some of the largest corporations, like the automakers.
I fear this administration would apply more of the same medicine – more bailouts, more failed stimulus spending plans, more regulation, and increased quantitative easing from the Fed by flooding the economy with even more dollars.
When Wall Street makes bad decisions and loses money, the middle class and the rest of us should not be responsible for that in any way. I’m not for any of the bailouts of Wall Street just as I’m not for any subsidization of different commerce.
What are the latest developments in your quest to audit the Federal Reserve?
Paul: We’d like to start to audit the Fed. There seems to be a significant public consensus for it. There was a significant consensus for it in the House of Representatives, and this is the frustrating thing of how Washington works.
I’ve been working for three years to get an audit. The interesting thing is it’s also tied to the filibuster in the sense that had Harry Reid not executed the nuclear option and broken the rules to change Senate rules and we still had the filibuster there’s a chance I could have held some of these nominations long enough to get the audit for the Fed voted on.
I couldn’t guarantee passage, but I could have gotten votes.
The only way they’ll ever give it to me is if I could use my leverage to force them to do it. Unfortunately, when they did the nuclear option – essentially breaking the rules of the Senate to change the rules – that leverage disappeared.
Shifting from the Fed to gold, Germany’s central bank is recalling 674 metric tons from vaults in New York and Paris, and the progress has been quite slow. By March, they only received 69 tons to Frankfurt. Given this request, do you support an audit of our gold reserves as well?
Paul: It doesn’t breed a lot of confidence that it’s taking them that long.
But yes, we should. If you audit the Fed, we probably ought to audit our gold supply as well. Now, I don’t want to be depicted as a person who thinks the gold is gone or has been stolen. But it’s been a while, and you should count periodically to make sure it’s there. An audit would be in order.
When was the last audit of the gold supply?
Paul: That’s a good question. I don’t know.
It’s been quite a while, but it’s interesting that Germany wants its supply. There have also been rumblings of other countries looking to link gold to their currency. It’d be interesting to know if some other country decided to link their currency to gold, would that lead to a rippling effect around the world?
At the very least, we should study the issue of whether or not preserving the value of the dollar matters and whether we’ve done a poor job at doing so, which I think would be the conclusion.
With China and Russia trading bilaterally in their own currencies and the BRICs looking to reduce reliance on the dollar, is anyone sounding the alarms on the United States’ reserve currency status?
Paul: America has benefited from reserve currency status for a long time.
Unfortunately, the status quo is in jeopardy. The rest of the world is watching us closely – they’re noticing that our debt is becoming unsustainable, much of which is being financed by our central bank’s printing press. The world is taking notice that our fiscal and monetary house is not in order. If the world ditches the dollar, and America loses dollar reserve status, it will certainly have a negative impact on our way of life.
Speaking of currencies. Bitcoin has garnered recent attention from regulators. What is your position on virtual currencies and their promise going forward?
Paul: I’m all for allowing people the freedom to trade in whatever they want to, and if they are successful, I don’t want government to be the reason that they’re unsuccessful.
I support freedom of trade and the freedom to allow people to make contracts. I’ve been intrigued that some people who I consider to be intelligent analyzers of the marketplace, like Marc Andreessen, are sold on Bitcoin.
I haven’t been as sold on Bitcoin because it’s still a concern with the recent [Mt. Gox] theft that if you have something that really has no backing, is that an illusion or reality? The intriguing thing Andreessen wrote about was the savings of two or three points for retailers who use Bitcoin is enormous.
I think it’d be cool if companies like Walmart, Target, Kroger, and Kmart all got together, 10 big retailers, and said, “We’re going to do our own currency to save the transaction fees, and we’ll back it up with a pool of stock.”
I’d be much more inclined to own “Wal-Coin” or something similar if I knew I could exchange it for stock or it was redeemable for something of value.
In terms of free market ideology, what amount of current federal spending violates your free-market, limited-government principles?
Paul: I wouldn’t say there’s an exact line.
I would say the first line we ought to try to get to is that we should spend only what comes in, and that is not a question of the size and scope of government.
I don’t think it’s wise to keep borrowing so much money for just the traditional things that a government does every day: the payments to senior citizens, payments for welfare, payments for foreign aid, you name it.
Would I prefer a smaller government? Yes.
The government would be smaller if we only spent what comes in. I’d be somewhat satisfied if we could spend what comes in really. If the government would be smaller, then ideally we could show that the marketplace could take care of many so-called government functions that I’d like to outsource to the private sector.
Incentives matter. We’ve now discovered that our federal agencies have their own incentives to maintain the status quo: demanding more federal dollars, cooking figures, or hiding evidence for pay bonuses. Will Congress finally punish government employees who exploit Americans’ trust?
Paul: In the recent Veterans Bill, we gave the President the ability to fire people in the VA. Whether or not he’ll do it is another story.
It really is a crime against the public that when government employees commit malfeasance, you can’t fire them. At the EPA, they caught one guy who was downloading porn six hours a day on his government computer. In a speech, I said, “Well, at least we caught him. He’s been fired, right?”
No. He’s a government employee, and you can’t get rid of them.
And so is Lois Lerner of the IRS. Even with all these problems, you just can’t get rid of government employees. And it’s why they shouldn’t have collective bargaining for federal employees.
Even Franklin Roosevelt recognized that people receiving taxpayer money have such an influence on elections that there would never be a true contractual debate. Government unions get what they want, which is what we’ve done for 40 years.
You mentioned Lois Lerner at the IRS. It’s been big news that her e-mails disappeared due to a “computer crash.” Is it time for a special prosecutor to investigate this matter?
Paul: Yes. How long have we been in this scandal? A year? A year and a half?
And nothing’s happening.
I like that we have now a special committee investigating Benghazi, but there ought to be one on the IRS.
I think one thing that galls people – whether you’re a Republican, Democrat or Independent – is the fact that government could be used to bully and punish people who are your political opponents. It goes against everything that most Americans want in their government.
Do you agree with the President’s stance on not sending ground troops to Iraq? What would you have done differently to better stabilize the country and the region?
Paul: Those who are criticizing the President – saying he should do more – they’re also the people who got us into this quagmire. They’re also the people who told us there were WMD’s, told us we would be greeted as liberators, that there would be no problem, that it would be a cake walk, and it would be better for our country and better for the Middle East.
The Middle East is much less stable now than it’s been in a long time, and definitely much less stable than when the Iraq War began. The consequence of removing Sunnis from power in Iraq has emboldened the Shiites not only in Iraq, but also in Iran.
Iran is in a much stronger position since the Iraq War. And we now have the confusion that we are arming rebels in Syria that are aligned with the group that’s taking over Iraq.
We’re fighting against Iranian proxies in Syria, but now would ostensibly be supporting Iranian proxies in Iraq. There’s so much muddle to this, and so much contradiction, that it’d be a mistake for us to get back involved in this war. I’ve been, for two or three years now, trying to rescind the authorization of force for Iraq because they say the war’s over.
The problem is that things have been lingering there now for 11or 12 years and they maintain [the authorization] gives them power to go to war any time they want, but 12 years ago [we had] a completely different Congress and a completely different public, and I don’t think that you get permanent license to go to war.
The country needs to have a debate over it, and decide whether Americans are interested in war. That would mean the potential of another 4,000 soldiers dying to retake cities that the Iraqis apparently weren’t interested in defending themselves before they took off their uniforms and ran.
I see nothing good about us getting involved there.
Which voting bloc is most up for grabs in 2016 for Republicans?
Paul: Republicans need to compete in a variety of new voting blocs or voting blocs in which they haven’t been successful.
That would include African-Americans. I’m spending a lot of time traveling to our nation’s cities, saying, “Look, your city is in bankruptcy. Your city is in ruins. There are Republican ideas for dramatically lowering taxes to stimulate your city again and to invite business in. These ideas include free trade and increased immigration into some of our cities to get new people with entrepreneurial skills and capital.” There’s opportunity for us there.
There’s opportunity for us with the Hispanic and Asian-American populations. But to tell you the truth, there’s only upside because we’ve done pretty poorly with those groups. It’s going to take someone who reaches out, reaches out to the youth on issues of privacy and that the government needs to be reined in on the NSA’s surveillance of Americans. There are all kinds of opportunities and we’re not going to win with the same old, same old. It’s going to require us to rehabilitate the party in a bigger, broader way.
One final question. When a U.S. Senator says that he or she is exploring the possibility of running for president, what does that process entail?
Paul: From my perspective, it requires discussions with family about the rigor and the arduous task of running for President. Then, you need to see if you’re in a place where you can win. I won’t do it if I don’t think that I’m being considered as one of the top-tier candidates and that I have a chance of winning. All of this will be factored in, and we won’t make a decision until spring of 2015.