CNS News caught up with Senator Rand Paul (R-KY) outside of his office to discuss the fragile state of the economy and tax policy.  Paul didn’t directly respond to Barack Obama’s State of the Union speech, although CNS reports on some of the post-speech statements from Paul’s colleagues James Inhofe (R-OK) and John Thune (R-SD), the latter of whom is rumored to be mulling a challenge to Obama in the 2012 election.  Paul instead endorsed the permanent extension of the current tax rates to keep businesses and investors from getting “negative signals” on tax policy, and remarked that many in the Beltway still haven’t learned the lesson of the 2010 midterms:

“I would extend them permanently. The point is that the marketplace has made the decision and is basing their business decisions on lower taxes,” Paul told CNSNews.com. “Anything you do to raise taxes will give a bad signal to the marketplace that’s already brought these (current tax rates) to their business calculations. In Kentucky, we have 10 percent unemployment. We are still in the midst of a great recession. The other side needs to fully and truly understand that they need to embrace the marketplace and not government. They still see government as the solution to everything.”

Earlier Tuesday, the Republican-controlled House voted to scale back federal spending to Fiscal 2008 levels, before emergency measures such as the $700-billion financial bailout and the $787-billion stimulus were enacted.

“I recognize that some in this chamber have already proposed deeper cuts, and I’m willing to eliminate whatever we can honestly afford to do without,” Obama said. “But let’s make sure that we’re not doing it on the backs of our most vulnerable citizens. And let’s make sure that what we’re cutting is really excess weight. Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may make you feel like you’re flying high at first, but it won’t take long before you feel the impact.”

On that score, Paul has his own plan to cut into the massive budget deficit.  The Los Angeles Times reports on his proposal to cut $500 billion in a single year, almost halving the deficit, through a massive reduction in the federal bureaucracy:

Republican freshman Sen. Rand Paul (R-Ky.) has unveiled his plan to cut $500 billion from the federal budget in a single year — a path that would transform the federal government and dramatically curb its reach into American life.

Paul’s budget cuts more than five times as much as House Republican leaders have advocated and faces little chance of winning support, even from within his own party.

Still, the “tea party” favorite’s plan demonstrates one pole in the coming budget debate. His plan would cut in half funding for the Department of Commerce and nearly eliminate the Department of Education. It would eliminate the Department of Energy, which oversees environment regulation and enforcement.

The budget would cut funding for the federal court system and the Agriculture Department by nearly one-third. The Pentagon would see a roughly 6% cut, and the Food and Drug Administration a 62% cut.

“By removing programs that are beyond the constitutional role of the federal government, such as education and housing, we are cutting nearly 40% of our projected deficit and removing the big-government bureaucrats who stand in the way of efficiency in our federal government,” Paul said in a statement.

It’s a bold plan, and one that has little chance of success in the current Congress.  It quintuples the pledge made by the GOP last year, a pledge from which they have retreated a little since discovering in the lame-duck session that they had to finish the FY2011 budget that Democrats punted rather than start in FY2012.  Paul’s plan will force Democrats and Republicans alike to debate the nature of the federal government, where its authority and jurisdiction should start and end, and ask the tough questions about whether America can afford to make everything a federal issue.