Forbes columnist and Tax Notes editor-in-chief Jeremy Scott suggests that Senator Marco Rubio would not be able to lead on tax reform if elected president because he does not have sufficient experience. “Rubio isn’t on the Senate Finance Committee,” writes Scott. (Full disclosure: I am a columnist for Tax Notes.)
But a president's past experience does not determine the extent of issues he can address as president. To achieve as president, what is needed is governing experience, vision, and first-rate personnel. Presidents John F. Kennedy, Ronald Reagan, Bill Clinton, and George W. Bush had no experience in federal tax legislation, yet each president signed major tax reform into law.
President Lincoln had almost no experience relevant to the presidency, yet he is widely regarded as one of America’s greatest presidents.
President Buchanan, who as Secretary of State arguably had among the most relevant experience, was widely regarded as one of most ineffective presidents.
By this line of reasoning, the only prospect for sensible tax reform in 2017 is for a member of the Senate Finance or House Ways and Means Committees to be elected president. There is little chance of that in the upcoming presidential election, unless House Ways and Means Committee Chairman Paul Ryan (R-WI) or Senate Finance Committee members Rob Portman (R-OH) or Charles Schumer (D-NY) decide to throw their hats in the ring.
Other presidential candidates, including Democratic front-runner Hillary Clinton, have equally little experience on tax-writing committees.
Rubio has put forward for discussion the most comprehensive tax reform proposal of any 2016 presidential candidate. Scott writes that “even some liberals have grudgingly admitted [the Lee-Rubio plan] is a lot better version of a flatter tax structure than anything from his conservative rivals.”
Lee and Rubio propose to simplify the tax system by replacing the current set of 7 individual income tax rates with 2 rates, 15 percent and 35 percent. They eliminate the alternative minimum tax, which now imposes a second tax system on many filers. They end the marriage penalty, making the tax bracket for two people twice as high as the bracket for one person. They offset the cost of childrearing through a refundable tax credit of $2,500 for each child.
On the corporate side, Lee and Rubio propose to move to a territorial tax system, like most of the Organization of Economic Cooperation and Development countries, where multinationals’ income would be taxed when earned within U.S. borders rather than worldwide, as at present. They propose a maximum tax rate of 25 percent for both corporations and pass-throughs—small businesses, partnerships, and S-corporations that now file under the individual tax code.
The integration of the corporate and pass-through rates is particularly valuable. Many proposals for corporate tax reform, such as President Obama’s proposal, do not address the tax treatment of pass-throughs, with the result that the corporate tax would be lowered and the individual rate left the same. This would create a 15 percentage point difference between tax rates for pass-throughs and corporations, giving pass-throughs an incentive to incorporate. As some incorporate, others would have to do the same in order to remain competitive.
Approximately 51 percent of pass-through income in 2012 was subject to the federal income tax rate of 39.6 percent. Pass-through businesses earned $1.3 trillion in net income in 2011 (latest data available) and 64 percent of total business income. They paid $1.65 trillion in salaries and wages, 37 percent of the total, and accounted for 55 percent of private-sector employment.
Reducing the rate to 25 percent would encourage more start-ups and expansion of existing businesses. The Tax Foundation estimates that the Lee-Rubio plan would raise GDP by 15 percent after 10 years.
The Lee-Rubio tax proposal will be refined further before it is written into legislation, their staffers say. One disadvantage, as I have written elsewhere, is that some singles and couples without children under 17 might pay tax at higher rates in some income ranges. This could be solved by adding a third bracket, perhaps 25 percent, between the two 15 percent and 35 percent brackets. Another possibility would be to keep the two rates, but make them 15 percent and 25 percent.
Scott writes that "If serious tax reform is going to happen in 2017, it will take a president that is committed to emulating Presidents Reagan and George W. Bush." There is no reason why Rubio cannot emulate these individuals. Neither Reagan nor Bush served a day in Congress, much less on a tax-writing committee. Rubio spent ten years in the Florida House of Representatives, including two years as Speaker.
The question that should be asked of presidential candidates is whether they have the ability to put forward proposals and galvanize people around them. So far, judging by Rubio’s standing in the polls, he is not doing too badly.
Diana Furchtgott-Roth, director of Economics21 at the Manhattan Institute, is the coauthor of "Disinherited: How Washington Is Betraying America's Young." Follow her on Twitter here.
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