Sen. Marco Rubio has proposed a historically large tax cut. But it's not big enough to spare him from attacks on his right flank.

"It's a welfare transfer payment," Kentucky Sen. Rand Paul dubbed Rubio's tax plan in a presidential debate last month.

Paul, a libertarian rival to Rubio for the GOP nomination, was opining on the Florida Republican's proposed $2,500 per child tax credit. It's a preview of attacks to come as Rubio continues to gain in polls and among Republican donors.

But the tax credit is more than just one campaign plank among many. It represents a toehold in the Republican mainstream for a group of conservatives trying to change the party.

These reformers believe that the Republican Party must address economic pressures on middle class families to survive politically. But doing so with tax credits grates against the conservative imperative to cut rates. So it's opened Rubio to sharp criticism.

Even as he has to defend himself from other charges that his plan is a huge tax cut for the rich, as he did in a notorious tangle with CNBC debate moderator John Harwood, Rubio inevitably will have to fight Paul and Texas Sen. Ted Cruz over the idea of the tax credit. Cruz is the conservative perhaps best positioned to make a run for the nomination from Rubio's right, and he has proposed an ultra-low flat tax rate as aggressive on the supply side as anything ever proposed by a major politician.

Nearly 30 years after Ronald Reagan's landmark tax reform, the last such rewrite of the tax code, the Republican Party is either ready for somone like Rubio to attempt to move them beyond the tax policies of the Gipper, or it will stick with what it knows.

Post-Reagan thinking

When Reagan arrived in office, he inherited a congressional Republican supply-side agenda focused on lowering tax rates. It was formulated by New York Rep. Jack Kemp and Delaware Sen. William Roth.

The top tax rate on individuals back then was 70 percent. In 1981, Reagan signed a bill lowering it to 50 percent. In 1986, he signed broad tax reform legislation further lowering it to 28 percent and, in doing so, he established supply-side economics and defined the Republican Party as the party of lower tax rates.

The driving motivation for the tax cuts, Republican lawmakers said, was to boost growth by lowering disincentives to save and work created.

For the same reason, every GOP candidate today is proposing significant reductions in the Obama-era top marginal tax rate of 39.6 percent.

Rubio's tax goals are relatively modest. He would return the top rate to 35 percent rate, as it was after George W. Bush's cuts.

Others go further. Jeb Bush, Chris Christie and John Kasich, often viewed as establishment candidates, want to roll back rates to their lowest level under Reagan, 28 percent. Paul's target is a flat 14.5 percent rate.

Cruz outbids them all with a 10 percent flat rate. The flat tax, long the prize for movement conservatives, applies the same rate to all income levels above a certain minimum threshold.

Supply-siders love what they are hearing.

"I'm ecstatic," said Art Laffer, the former Reagan economic adviser widely credited as the father of supply-side economics.

"These guys are unabashed out there," he enthused, noting that the candidates have been competing to offer the boldest reductions. They've been converging downward on a "wonderful tax plan," he said.

Laffer's eponymous Laffer Curve indicates that tax rates above a certain level lower revenues. Laffer believes the tax code should be used for one purpose only: to raise enough revenue to fund government programs while causing the least damage to the economy.

A low, broad-based flat tax provides people with the fewest incentives to avoid taxation or change their behavior, Laffer says. Thus, it's the best way to raise revenue, even if it means that the biggest tax cuts accrue to the rich.

In The Wall Street Journal op-ed introducing his tax plan, Cruz attributed the idea for his flat tax to Laffer. It puts him in position to attack Rubio from the right in the primary, proposing plans to cut income taxes by $12 trillion and corporate, payroll and estate taxes by another $17 trillion. Those huge cuts would be replaced in large part with a value-added tax, a form of consumption tax or tax on spending rather than earnings that most economists see as an efficient way to raise revenues.


All those provisions are Laffer-approved. In contrast, Laffer called Rubio's expanded child tax credits "the silliest thing I've ever heard."

"If you do want to help people with kids, write them a check," he said, arguing that government programs to help specific groups should be in the budget, not the tax code.

Laffer has long been extremely influential in the Republican Party. Candidates, including Rubio, seek his advice, run ideas by him and get his input before settling on a campaign platform.

In the wake of successive losses to Barack Obama, however, many GOP-aligned policy thinkers want to push the party away from supply-side Reaganism.

"Generally speaking, there is too much concern about the highest tax rate on regular labor income," said Robert Stein, a conservative tax expert and former official in the George W. Bush Treasury Department.

In 2010, Stein sketched out a pro-family tax agenda in the conservative policy journal National Affairs. That article laid out the case for the child tax credits that would later become part of Rubio's plan.

The idea of the credits gained currency among a group of intellectuals in think tanks, academia and the media now known as "reformocons," shorthand for reform conservatives.

They turned to credits because they believe the value of tax-rate cuts has diminished since Reagan's day.

The math is fairly simple. Cutting the top rate from the 70 percent that Reagan faced to 50 percent means the income earner gets to keep 50 cents on the dollar rather than 30 cents. That is a two-thirds increase in after-tax income.

An equivalent cut in the top rate from 50 percent to 30 percent, however, means that a worker's after-tax income goes up from 50 cents on the dollar to 70 cents, an increase of just 40 percent.

In other words, tax-rate cuts have significantly less bang for the buck when the top rate is already lower. And efficiency is important when such large sums are in play. A 2013 analysis conducted by Congress' nonpartisan in-house tax advisers found that cutting income tax rates to 25 percent and 10 percent would cost the government nearly $4 trillion over 10 years, or 10 percent of all government revenue expected at the time.

Reformocons believe there are better ways to spur growth with the same money. At the top of the list is reducing taxes on investment, since investment taxes make it harder for businesses to expand.

Rubio does that in his plan by simply eliminating most investment taxes. On the individual side, people would no longer have to pay capital gains or dividends taxes. On the corporate side, companies would allow "full expensing," meaning they could immediately deduct investments in their businesses from their taxes.

"He's focusing tax relief in his plan on actual parts of the growth package that will do something," said Ryan Ellis, the director of tax policy at Americans for Tax Reform, the conservative group that pushes candidates to pledge not to raise taxes.

Rubio's plan is also intended to address what reformocons see as a subtle distortion in incentives created by government retirement programs such as Medicare and Social Security. Those programs, they argue, decrease the incentives for people to have children who would later support them in old age. At the same time, children are needed to shoulder the taxes for retirement programs in the future. Accordingly, families need relief for child rearing to even out the incentives they face.

The Romney experience

In the eyes of reformocons, cutting taxes for middle-class families also happens to be good politics.

To them, Mitt Romney's 2012 campaign tax plan is an example of what the GOP must avoid. The former Massachusetts governor structured his tax proposals in such a way that it was possible for the Obama campaign to claim plausibly that Romney would raise taxes on the middle class.

Romney's plan lowered the top income tax rate from 35 percent to 28 percent, and made up the lost revenue by cutting deductions and other breaks. Team Obama suggested that, to make the math add up, the breaks Romney eliminated would have to include ones that benefit middle-class families. The effect would be taxing normal families to give tax cuts to millionaires, they argued.

Reformocons see Romney's tax problems as a sign that Republicans must depart from supply-side orthodoxy if they want to avoid being the party of the rich, and lose elections as a result. They cite exit polls showing that half of voters thought Romney's policies would favor the rich.

Middle-class tax relief, Ellis claimed, is also crucial to passing any tax reform plan once the election is over. Since Reagan's 1981 tax cuts, he noted, all successful GOP tax efforts "have been a mixture of pro-growth policies and policies that favor middle-class families, and middle-class families with children."

Other candidates have tried some ideas meeting those prescriptions. Jeb Bush, for instance, would double the standard deduction, aiming to move 15 million Americans off the tax rolls altogether. But no one has moved as far in the reformocon direction as Rubio with his child credit proposal.

So why haven't the reformocons' ideas influenced more Republicans? There, Ellis and several others independently pointed to the Wall Street Journal editorial page.

The paper's editorial board, they say, enforces a supply-side ideology that emphasizes the role of corporate leaders and heroic entrepreneurs and hasn't been updated in 30 years. It has outsize influence among the East Coast Republican donors who, in turn, influence campaigns.

Paul Gigot, the editorial page editor for The Wall Street Journal, responded that growth is the best prescription for raising families' incomes. He reeled off a litany of prominent conservative economists, from former Bush adviser Glenn Hubbard to Stanford professor John Cogan, whose research provides evidence that lower tax rates yield higher growth.

Gigot also rejected the politics of tax credits geared to the middle class, arguing that Democrats will simply propose bigger credits and still attack the GOP for high-end tax cuts. Worse, the GOP candidate could win and enact the credits, only to disappoint voters when the promised growth doesn't materialize, as it didn't after Bush's cuts.

He noted that Republicans other than Rubio haven't adopted reformocon ideas. "Maybe their tax proposal isn't as popular with Republicans because it's so popular with the liberals at Vox, and Bloomberg and The New York Times," he said. "They're the people that applaud the reformocons as great innovators. I wonder why that is. Maybe because they realize that it's just a version of liberal redistribution through the tax code.

"One of the arguments they make is that well, this is old-hat Reaganomics. What they offer is old hat George W. Bush economics from 2001," he said referring to the middle-class tax cuts included in Bush's tax package.

Which is truly Reagan?

Yet reformocons claim to be the true heirs to Reagan.

Henry Olsen, a scholar at the conservative Ethics and Public Policy Center in Washington, has researched Reagan's speeches and interviews on the topic of tax reform, and concludes that Reagan prioritized relief for normal people, not economic growth spurred by low rates, in his rhetoric.

"I would like to see a recovery of Reaganism," Olsen said. "I would like to see a recovery of the idea that everyone contributes to the economy, not simply the entrepreneur.

"Because when I think about who's struggling in America right now, and who needs to know that the government is on their side, it's not the entrepreneur, it's the working-class person. And Ronald Reagan understood that."

Reagan's statements around the time of the 1986 tax reform suggests that the Gipper's rhetoric did stress normal families rather than businessmen or entrepreneurs. "Giving a leg up to those struggling to move up is what America is all about. And that's a top priority of our tax proposal," Reagan said in May 1985, in a passage emblematic of his stump speeches around the time.

But what exactly Reagan thought, and who has legitimate claim to his legacy, is a matter of debate among those who were there.

"Reagan was a supply-sider. He really did envision the economy growing rapidly, and I think the data bore out his confidence," said Jim Miller, Reagan's budget director during the negotiations over the '86 tax reform.

On the other hand, Reagan "did appeal to individuals about cutting their tax liabilities. He didn't distinguish between rich people and poor people and all like that," Miller said.

Bob Packwood, the former Republican senator from Oregon who was chairman of the Senate Finance Committee and is credited with making the '86 tax reform happen, suggested that lowering rates was a secondary consideration. "I have never thought the issue is what the rate is," Packwood said, adding that "the rate is not nearly as critical as, one, who you're going to tax; and two, how much you're going to get from them, whether they pay 50 percent or 5 percent."

Packwood said the GOP presidential plans mostly hew to the blueprint of the '86 tax reform, except in two significant ways: The '86 reform was meant not to change the distribution of taxation and was meant not to add to the deficit.

In fact, the candidates have strayed far from that vision, and recent Republican practice in proposing massive net tax cuts. Without considering the feedback from added economic growth, Rubio's plan would be a $6 trillion cut over 10 years, while Cruz's would lower taxes by $3.7 trillion, according to the Tax Foundation, a Washington think tank.

"The Republican tax plans today are totally different from those of the Reagan era," said Bruce Bartlett, a former staffer for Kemp who has researched Reagan's tax policies and has become a critic of GOP fiscal policies. "Reagan cared about the deficit, Republicans today don't care anything about it."

It is a very recent development for post-Bush Republicans to embrace deficit-financed tax cuts. Romney's tax plan was meant to be revenue neutral, as was the draft reform written by House Way and Means Committee chairman Dave Camp in 2013. Orrin Hatch, the top GOP tax-writer in the Senate, has listed revenue neutrality as a requirement for tax reform.

Yet all of the Republican candidates for 2016 have embraced what supply-side founding father and Wall Street Journal editorial writer Jude Wanniski called the "Two-Santa Claus Theory" of fiscal politics. Democrats could always be counted on to play Santa for voters by proposing popular spending programs, Wanniski explained in a 1976 article. Instead of risking unpopularity by focusing on fiscal discipline, he argued, Republicans should be a second Santa by offering tax cuts.

In the end, it might not be more complicated than that. "My feeling frankly, straightforwardly, is that the vast majority of people who go to the polls in a Republican primary or participate in the Iowa caucuses or something like that, they just want to know the binary switch: Is this candidate in favor of lower taxes or not," Miller said. "And they're not all that concerned about the details of the tax plan."

That, of course, doesn't mean Rubio, Cruz and the others won't fight over those details this winter and spring.