Tax Law in the Republican Debate

GOP debateWith less than a year to go until the 2016 presidential election, we’re entering the world of full-fledged campaigning. And full-fledged campaigning brings with it tax proposals and tax assertions. And there were plenty of those at last night’s Republican debate. How did they do? Let’s take a look at a couple of their assertions:

Carly Fiorina

We need to actually reform the tax code. Go to a three-page tax code. Yes, there are plans that would reform our tax code to three pages.

It’s possible. But I’m skeptical that it would work—the Revenue Act of 1913 (our first modern income tax) ran about 16 pages, and it applied to less than 2 percent of U.S. households.[fn1] In 2015, almost 55 percent of Americans will pay the federal income tax, and vastly more will pay the various payroll taxes also included in the Internal Revenue Code.

And even if you could capture the tax law in three pages, all you’ve done is shift the lawmaking and implementation from Congress to the Treasury Department and to the courts (which would be required to resolve the ambiguity that three pages would necessarily leave). And I’m not convinced that shifting tax-making from a democratically-elected body to unelected administrative and judicial bodies is a good move.

[I]nnovation and entrepreneurship is crushed by the crushing load of a 73,000 page tax code.

That would be pretty crushing. But good news: the tax code is nowhere near 73,000 pages.

In fact, I have a two-volume paperback version of the tax code on my desk next to me. Let me reach over to grab it …

Okay, total of 5,622 pages. But that’s not all the Internal Revenue Code; the page count also includes, among other things, an abridged legislative history for each and every provision. That legislative history isn’t part of the law, but it helps tax professionals to understand when and how the Code evolved, and it probably takes up nearly half of the pages. (I mean, 2,800 pages is still a lot, but it’s nowhere near 73,000 pages.)

It’s also worth noting that these 5,622 pages aren’t just the personal income tax; they also contain partnership tax, corporate tax, excise taxes, and estate and gift taxes.

So where did Fiorina get 73,000 pages? She’s probably referring to CCH’s Standard Federal Tax Reporter. I had the roughly 20 binders in the series on my shelf when I was in practice, and it is an amazing resource for tax attorneys and accountants. It includes the text of the Internal Revenue Code, but it also includes the relevant regulations, IRS interpretations, and summaries of judicial decisions relevant to the section in question.

What it is not, though, is the tax code. It is an extremely helpful and useful research tool put out by a private company that is an invaluable research tool for those of us who spend time with the tax law. (Of course, Ms. Fiorina, you’re making me nostalgic for the days when I didn’t have to go to the library to get my hands on it.)

Ben Carson

He’s going to be harder to grab pull-quotes from, so a little summary: he’s proposed a roughly 15-percent flat tax, originally arguing that if it was good enough for God, it was good enough for us. After Adam Chodorow’s relatively devastating explanation of what biblical taxation entails, he’s walking back the religious aspect of it, and focusing on the idea that a proportional tax is the fairest tax. And, at 15 percent for everybody, his tax would be proportional, not progressive.

Except that it wouldn’t. Under his system,

there will be a rebate for people at the poverty level.

He doesn’t detail what that rebate will look like, but a rebate at the poverty level means that lower-income individuals will, on a net basis, pay a lower percentage of their income in taxes. So Carson doesn’t really challenge the idea that some degree of progressivity is both necessary and fair; his dispute is actually about the contours of progressivity (that is, how progressive should the tax law be).

That said, he made a couple great points. He acknowledged that under his plan, deductions had to be curtailed, including the mortgage interest deduction and the charitable deduction. But, he said,

the fact of the matter is, people had homes before 1913 when we introduced the federal income tax, and later after that started deductions. … We had churches before that and charitable organizations before that.

Rand Paul

Paul apparently also wants a proportional tax (14.5% rate on individuals, 14.5% on corporations). But he differs from Carson in two significant ways: first, he doesn’t appear to provide any type of rebate or reduction to the poor. Second, he keeps the mortgage interest and charitable deductions, both of which are more likely to benefit the wealthy (who own their homes and can afford to donate significant amounts to charity) than the poor (who are much more likely to rent and much less likely to be able to afford charitable donations).

That said, Paul claims he has matched his taxing with spending plan, and that his plans together balance the budget in less than five years. I don’t know the details of his spending plans, but he describes his preferences as having

a government really, really small, so small you can barely see it.

Without knowing the details of his plans (and maybe he’s laid them out, but I haven’t looked), it’s hard to say whether the burden of the cuts will fall heavier on the rich or on the poor, but I suspect that significant spending cuts will hurt both (though the pain to the poor is likely to be steeper).

Oh, and also he does away with payroll taxes.

Ted Cruz

Cruz leads with a joke:

There are more words in the IRS code than there are in the Bible — and — and not a one of them is as good.

A couple things, Mr. Cruz: notwithstanding my friend Andy Grewal’s patience with it, there is no IRS Code. There’s an Internal Revenue Code, passed by Congress (of which you’re a part, btw). There is plenty of IRS administrative gloss around the Code. But there isn’t an IRS Code.

So we’ve got that clear.

On to the assertion: absolutely there are more words in the Internal Revenue Code than in the Bible. According to this site,[fn2] the King James Version of the Bible has 783,137 words. The best estimate for the Internal Revenue Code is something just under 4 million words.

Frankly, though, I’m not sure why the Bible is an appropriate comparison. The Internal Revenue Code and the Bible serve significantly different purposes, and are, by and large, different genres.

Moreover, once you include interpretation, elucidation, Midrash, and all of the other commentary around the Bible, I suspect you hit more than the four million words of the Internal Revenue Code, and likely more even than the 73,000 pages of the Standard Federal Tax Reporter.

And More

There’s more, of course. But just as 5,300 pages appears to some to be too much for a tax law, 1,200 words is pushing it for a blog post. Ultimately, there are interesting ideas underlying the Republican tax proposals, but there are also misunderstandings and misdirections (and plenty of revenue loss)there.

So let’s see where we go from here.

[fn1] Joseph J. Thorndike, Their Fair Share: Taxing the Rich in the Age of FDR 5 (2013).

[fn2] (the accuracy of which I cannot vouch for)

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