Economy, Regs, & Taxes

Lee-Rubio Tax Reform: Pro-Growth, Pro-Family

The senators have put forward version 2.0 of their tax reform proposal first released last September.

Lewis Morris · Mar. 6, 2015

Republican Senators Mike Lee and Marco Rubio have put forward version 2.0 of their tax reform proposal first released last September. The two men offer a bit more detail to their sweeping plan this time around, and it’s still a strong, pro-growth proposal.

The broad strokes of the Lee-Rubio plan focus on making significant changes to the tax code to right the wrongs that have grown and multiplied over the last several decades. One of the most attractive elements of the plan is that it addresses both the business and the individual side of the tax structure from top to bottom. As National Review’s Yuval Levin points out, “Successful conservative tax reforms have always provided both broad-based relief and better incentives at the margins – not one or the other.”

The current tax code, as Lee and Rubio point out in their latest Wall Street Journal op-ed, has manifold failures – “impeding growth, discouraging investment, and restricting freedom on the business and the individual side – [and] they are all rooted in the same fundamental unfairness and inequity of a government that picks winners and losers.”

It’s one of the reasons recovery from the Great Recession has been more of a long, slow crawl toward a new mediocrity.

The Lee-Rubio plan attempts to balance these wrongs by making some fundamental changes to the tax code. One of the biggest changes is wiping away the seven current individual/family tax brackets and replacing them with two: 15% and 35%. The marriage penalty – so called because it taxes married couples higher than individuals – would be eliminated, along with the Alternative Minimum Tax and a number of deductions that also skew the tax system against working families. A new $2,500-per-child tax credit would be introduced to help offset overtaxed parents.

On the business side, the Lee-Rubio plan reduces the corporate tax rate to a maximum of 25%. It also eliminates double taxation of capital gains and dividends. Firms operating overseas would no longer have to pay tax abroad and at home, but only in the country where the income is generated. Businesses that invest in their own growth through expansion or infrastructure improvements will be able to deduct 100% of those expenses.

Like all ideas that come out of Washington, the senators’ proposal is going to be attacked for either going too far or not far enough. Democrats will reject pro-growth tax reform, arguing it will ultimately mean lower revenue. That’s unacceptable to leftists who seek to grow the massive welfare state. Never mind that lower tax rates frequently lead to greater tax revenue because of economic growth.

Democrats from the White House on down like the tax system the way it is – unless they could squeeze even more from taxpayers. Since the passage of the Sixteenth Amendment, the government has used the tax system to cajole individuals, families and businesses into certain behaviors bureaucratic elites believe to be conducive to a more progressive nation. The Lee-Rubio plan deliberately rejects that thinking, so the senators are sure to face steep opposition.

On the other side, some believe the proposed rates are not low enough. The top 35% individual bracket under Lee-Rubio is only four-and-a-half points lower than the current top rate under Obama. Additionally, it would be applied to a wider swath of taxpayers, meaning many people would actually face a tax rate increase under the new plan. And there are those who wonder if the corporate tax reforms, generous though they may comparatively be, go far enough.

No plan ever comes out of Washington without being rightfully scrutinized and criticized. But Lee and Rubio make the strongest case thus far for sweeping reform of America’s crippling tax code. Whether there are any other courageous souls on Capitol Hill willing to join the fight is another story.

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