In an analysis that is likely to prove a nuisance to Marco Rubio's presidential campaign, top tax experts have concluded that the Florida senator's tax plan would amount to a $6.8 trillion tax cut that would benefit high-income earners the most, while not helping poor families as much as Rubio has said it would.
Even more troublesome for Rubio, the analysis finds that his tax plan includes something similar to a value-added tax, the same form of tax that Rubio has harshly criticized his presidential rival Texas Sen. Ted Cruz for considering. The campaign denies that conclusion.
The Tax Policy Center, a nonprofit Washington think tank, on Thursday released an analysis finding that Rubio's plan to cut tax rates and reform the tax code would cut taxes by more than $900,000 for the top 0.1 percent of earners. Meanwhile, the bottom fifth of earners would see their after-tax income rise by $251, or just under 2 percent of income. That's far less than the major boost other analyses have suggested would be generated by Rubio's proposal, which includes new large tax credits.
"If the numbers added up, this would be a radical and innovative tax reform that would be worth taking seriously," said Len Burman, the organization's director. "Based on what they've announced so far, the numbers don't add up."
Rubio has said the goal of his plan, which drastically reduces taxes on investment, would be to accelerate economic growth. The Tax Policy Center analysis, however, suggests that the deficits it would create could lead to higher interest rates because of the amount of borrowing the government would have to do, stunting business growth and possibly canceling out the pro-growth aspects of the plan.
The Rubio campaign objected to the analysis.
"Marco is proud that his plan cuts taxes for working families, boosts wages for everyone, creates millions of jobs, and increases incentives for work and investment," Rubio spokesman Alex Conant told the Examiner in an email. "Of course a left-wing think tank that has been called 'the intellectual frontmen for President Obama's re-election campaign' is misrepresenting Marco's pro-growth, pro-family tax plan. Any analysis that does not account for the positive economic impact of pro-growth tax reform is worthless."
The Tax Policy Center experts also concluded that Rubio's plan would convert the income tax into a consumption tax along the lines of a value-added tax.
"Effectively, it's a value-added tax," Burman said, referring to a form of consumption tax that taxes sales at each step of the supply chain.
Rubio has criticized Cruz for proposing a form of value-added tax as part of his campaign tax reform proposal, warning that the VAT, as it is known, would expand the size of government. Conservatives have long worried that imposing a VAT, which most other advanced economies have but the U.S. lacks, would turn the U.S. into a high-tax country even if other taxes are cut.
Burman noted the irony that Rubio's own plan includes a version of a VAT, explaining that "this is a variant of a value-added tax designed to be more progressive." Conant disagreed with the group's analysis, saying that Rubio opposes VATs.
Parts of Rubio's plan, according to the Tax Policy Center, would mirror a tax reform economists know as the "Bradford X-tax," named after the late David Bradford, a Princeton professor.
Under both plans, businesses would be taxed on cash flow, with investments immediately deducted. Wages would not be taxed. Instead, those would be taxed under the individual income tax schedule, which has more progressive rates.
The major differences between the X-tax and Rubio's plan, the Tax Policy Center said, is that some forms of investment would be taxed under Rubio's plan and the top labor income tax rate, at 35 percent, would be higher than the business tax rate, at 25 percent.
Another inconvenient finding in the analysis is that Rubio's tax plan would provide only small gains for low-income earners. Rubio, with Sen. Mike Lee, R-Utah, had specifically designed the plan with the purpose of making it more family friendly, responding to the criticism of other GOP tax plans that they were too skewed toward the wealthy.
Part of that plan includes a refundable personal tax credit and a new partially refundable child tax credit of up to $2,500 per child.
Past analyses have suggested that those credits could boost low-income earners' incomes by up to 50 percent. The Tax Policy Center, however, found that the impact would be limited to just a few hundred dollars, under the assumption that the personal tax credit would not be fully refundable. They made that assumption, they said, following the logic that Rubio would not want many households to start filing tax returns for the sole purpose of claiming the refund.
Regarding that and other assumptions, however, the Tax Policy Center said it did not receive clear guidance from the campaign in answer to its questions.
In 2012, the Tax Policy Center released an analysis of GOP presidential Mitt Romney's tax plan that found that it would either add to the deficit or result in a tax increase for middle-class families. The Obama campaign used that finding as a criticism of Romney.