Republican Sens. Marco Rubio and Mike Lee unveiled Wednesday the outline of a tax reform plan they say is meant to spur economic growth and provide relief to working families, and one that could also serve as a template for Rubio’s campaign if he proceeds with a presidential run.
“The sum of this plan is the hope of triggering economic growth,” Rubio, who represents the state of Florida, told reporters while introducing the plan in the Capitol Wednesday. The senators also placed an op-ed in the Wall Street Journal previewing the proposal.
The plan is a simple set of bullet points for the individual and business side of the tax code, building on an individual tax plan introduced by Lee last year.
There are no detailed proposals or legislative language, the senators said, because the effort is meant to be the starting point for a politically difficult large-scale reform effort. Their goal was to introduce legislation only after consulting with businesses, experts, and others.
Neither senator is a member of the tax-writing Senate Finance Committee, which is currently involved in a tax reform effort with working groups focusing on specific parts of the tax code. Lee said that they plan to meet with that committee’s chairman, his fellow Utah senator Orrin Hatch, to talk about tax plans, although he did not give a timeline.
“We feel good about the initial outline,” Rubio said.
Rubio, a first-term senator considered a potential top contender for the Republican nomination in 2016, acknowledged that the plan could be read as a platform plank for his campaign, were he to announce a run.
“Of course this will be part of our platform” in a run for either the Senate or presidency, he said.”You think I’m going to come up with a second tax plan?” he joked.
The plan, in its outline, would dramatically simplify the U.S. tax code.
On the individual side, it would institute just two brackets, setting up a 15 percent tax rate for up for people earning up to $75,000 or married couples making up to $150,000, and a 35 percent top rate for everyone above that line. The current top rate is 39.6 percent.
Gone would be taxes on capital gains and dividends, as well as estates.
It would also create a new $2,500 child tax credit, applicable to payroll tax liabilities as well as for the income tax. The senators justify that credit on the grounds that the current tax code creates an unfair bias against parents who raising children who will pay for government programs supporting retirement and old age healthcare benefits.
Otherwise, the plan would reduce deductions, sparing only mortgage interest and charitable contribution deductions.
On the business side of the code, the plan would reduce the corporate tax rate to 25 percent, the target rate for most Republicans. It would also make that the top rate for businesses that file taxes through the individual side of the code, such as sole proprietorships and partnerships. Added to those rate reductions would be full expensing, allowing businesses to immediately write off expenditures on capital such as new machines.
The plan would end the unusual U.S. practice of taxing businesses on income earned overseas. Instead, it would move to a territorial system, in which businesses are taxed only on income earned in the U.S.
The flip side of the plan’s ambition is that it opens up the senators to criticisms about their fiscal math and the winners and losers that their plan would create.
Last year, the nonpartisan Tax Policy Center found that Lee’s plan would increase the deficit by roughly $2.4 trillion over 10 years.
That finding is likely to also be true for the individual portion of the Rubio-Lee plan, which mostly copies Lee’s previous proposal. Proposing a tax cut of that size would provide fodder for Democrats critical of lowering high income earners’ taxes.
The senators anticipated that criticism by arguing that, because the plan is meant to boost economic growth, it should be estimated using dynamic analysis, or accounting that reflects the added tax revenue that would come with faster economic growth.
“I think it’s unfair to score a pro-growth tax plan without taking into account growth,” Rubio said.
Lee and Rubio also maintained that the tax plan should be considered alongside efforts to reduce federal spending on entitlements, such as Social Security and Medicare. Rubio noted his support for Paul Ryan’s proposal to reform Medicare laid out in detail in past House Republican budgets.
“I’ve never believed that tax reform by itself should pay for itself, because that basically argues that the money belongs to the government and not to people,” Rubio added.
Another potential downside of rolling out the plan now is that, in order to pay for rate reductions, it would eliminate countless credits, deductions and other preferences that benefit individual families, businesses and groups. Any one of those “losers” could be highlighted by critics to damage Rubio or Lee politically.
Lee shrugged off that possibility, saying in response to a reporter’s question that “good politics will always follow good policy.”
Nevertheless, both Lee and Rubio underlined the fact that they intend to build on the plan as they go. “If someone has a better idea, we want them to propose it,” Rubio said.
