The Internal Revenue Code is a mess. In this, most agree. Marco Rubio has announced his plan to reform the Internal Revenue Code and each Republican candidate will undoubtedly follow quickly with their own particular plan. As a former tax practitioner and a current tax professor, while I will like some plans more than others, unless the FairTax makes an untimely reappearance, I will believe that each plan is far better than the current Internal Revenue Code. (I co-authored a book entitled The FairTax Fantasy that in retrospect deems the FairTax flawed in ways so similar to Obamacare that it is a bit spooky.)
Marco Rubio's plan lowers tax rates, reduces the number of tax brackets and reduces deductions for individuals. The details have not emerged, but he certainly would move in the correct direction. His view of business taxes also results in lower rates and taxes international earnings in a manner identical to most of the rest of the world which is a huge plus. The details need to be seen, but let us assume that the Rubio plan and all other Republican plans are perfect or, at least, near perfect.
The question is not whether these plans are good or bad for the United States of America. It should be the question, but it is not. The question is whether income tax reform is a viable election issue or whether income tax reform is a liability to the Republican Party during a presidential campaign.
Donors to political campaigns care about income tax reform. Anyone who can write a check for one thousand dollars likely cares about income tax reform. But who else cares about anything except the amount of tax they must pay?
In 2010, there were only 143 million tax returns filed. For anyone and everyone who did not file a tax return, reforming the income tax law is without impact. Of the 143 million tax returns filed, 59 million taxpayers filed either a 1040A or a 1040EZ. While tax reform might eliminate fifteen minutes of work and a single tax form, there is no tax reform that will make filing a tax return much easier than a 1040A or 1040EZ. That leaves a potential interest group of 84 million tax return filers, a formidable number. But most of those taxpayers probably only file a schedule A to take their tax, interest and contribution deductions. So, we are left, for the most part, with the 18 million taxpayers who have their own businesses and earn a profit. And for these 18 million, nothing in any of the tax proposals makes the requirement to calculate taxable income from a business any easier or any harder for a sole proprietor.
Most Americans would be unimpacted by tax reform as they do not pay taxes and/or they file forms 1040A or 1040EZ. (Yes, the economy might and probably would improve with tax reform, but few taxpayers would equate the result with the underlying legislation.) And the Democrats will yell foul at any reduction in tax rates for the wealthy and for corporations. Correct or incorrect intellectually, these attacks on Republican tax reform ideas will not fall on deaf ears.
The result here is Republicans need to accomplish tax reform, but it is not a winning campaign issue. It may make donors feel good, but will not accomplish very many votes for a Republican candidate. In fact, it could cost an election.