Sen. Rand Paul (R-Ky.) and Senate Majority Leader Mitch McConnell (R-Ky.) have proposed legislation that would prevent the federal government from bailing out bankrupt cities and states across the country.
But their bill would allow economically troubled regions of the country to benefit for a series of tax breaks and relief from federal regulations — benefits these areas could receive by being designated as an Economic Freedom Zone.
Paul said his bill is a more market-oriented approach for helping depressed areas to recover
"The answer to poverty and unemployment is not another government bailout; it is simply leaving more money in the hands of those who earned it."
McConnell added that the bill, S. 1852, would also help by "unraveling burdensome federal regulations that are stifling economic development."
The legislation gives the secretary of the Treasury the power to designate states, cities or even a region bound by a single zip code as an Economic Freedom Zone. Regions would qualify for this designation if they are eligible for chapter 9 bankruptcy, at risk of insolvency, have an unemployment rate 1.5 times higher than the national average, or if the Treasury Secretary designates an area as one of the 10 most impoverished in the country.
Areas so designated would have their business and personal income taxes slashed to a flat rate of 5 percent, and enjoy zero capital gains taxes, reduced payroll taxes, and increased business expensing for small companies.
The zones would get exemptions from compliance with Environmental Protection Agency regulations on air and water pollution, and would also make it easier for these zones to import qualified non-U.S. residents as workers.