The Rubio – Lee tax overhaul plan is… better than nothing

Jazz Shaw Posted at 11:01 am on March 04, 2015

I know that a lot of tax reform hawks were hoping for more of a complete overhaul, perhaps taking the form of an entirely new system which replaces the progressive tax code with a completely alternate structure. (Something along the lines of a flat tax, consumption tax, etc.) It doesn’t look like that will be happening any time soon, but Marco Rubio and Mike Lee are at least looking at some simplifications.

GOP Sens. Marco Rubio of Florida and Mike Lee of Utah are rolling out an overhaul of the tax code on Wednesday that, among other things, consolidates existing tax brackets and provides for a per-child credit for parents.

The two Republicans offered a preview of their plan in a Wall Street Journal piece, writing that restoring shared prosperity that comes with a strong economy “requires reforming the most antiquated and dysfunctional government policies, beginning with the federal tax system.”

Their plan would lower the maximum corporate tax rate to 25 percent on both corporate and pass-through entities, eliminate “double taxation” of capital gains and require firms with overseas operations to be taxed only in the country where income is earned.

On the individual filing side, the plan would consolidate the seven existing brackets into two groups — 15 percent and 35 percent — and make remaining deductions available to all filers.

We’ll need to see the full plan and have some time to dig through it, but at most I would call this “a good start.” There are some important flaws in the current system which would be addressed by this – at least to a point – but others which won’t be touched. We could start with the corporate tax rate, which is clearly too high on paper, but at 25% would still be too high if business were actually paying it. (Almost none do, of course.) The encyclopedia size corporate tax laws allow for so many dodges and deductions that the amount you pay largely depends on how large of an army of high power tax attorneys you can afford. I’ve been an advocate for a long time now of just instituting a flat 10% corporate tax rate on all profits above some minimum threshold based on either the number of employees or gross revenue. Just calculate what you took in, subtract what you spent, and if the difference is a positive number you send in a check for 10% of that.

I have no problem with two tax rates instead of seven for individual and family filers, though the 35% bracket seems a bit high. What I’m more curious about are the piles of deductions and credits which complicate the returns. Eliminating the marriage penalty is a popular idea, but removing “marriage” from the tax code entirely and just focusing on the number of children being raised would be simpler and more fair.

As far as the capital gains tax goes, I don’t see why we’re still debating a number. There should be no capital gains tax, period, full stop. It’s double taxation by definition in most cases and really just translates into an age old liberal tradition of saying, you made too much money at one time for us to be comfortable, even though you did risk your assets to do it, so we’re going to take a big cut out of it.

I’ll give Rubio and Lee credit for trying, assuming that they can get something like this to the floor for serious consideration. We could do a lot more, but at least it’s a start. Unfortunately, I don’t expect it to fly. There are too many people who have invested far too heavily in the careers of these politicians based on assurances that they would all keep their individual slice of the pie.