Further Thoughts on the Lee-Rubio Tax Plan


I say some good things about the Mike Lee-Marco Rubio tax plan in my The Week piece, “Marco Rubio and Mike Lee have cooked up the first great tax cut plan of the 21st century.”  Yes, an (overly) effusive headline. As I write:

So Lee and Rubio seem to be following the same general Reagan formula, just updated for modern realities. They would immediately attack income stagnation for the middle-class. And they would transform the income tax code into a consumption tax code, which economists tend to agree would promote more investment and long-run economic growth.

Directionally and philosophically, Lee-Rubio is absolutely on the correct path regarding the above points. But as I also write, I have concerns about its revenue-negative impact. And I would guess the Tax Foundation dynamic score is probably on the high end regarding its pro-growth effects. Also, there are a lot of moving parts here that will need to be sorted out regarding its distributional impact. It’s complicated, gang! The authors need to be prepared to tweak as necessary to make sure tax relief is going to middle and lower-incomers. For myself, I would be happy right now doing less — a lot less perhaps — on the personal side regarding the top rate and cap gains/dividends, especially given the sweeping reform of the corporate code. And obviously the politics of taking, say, Mitt Romney’s tax liability to zero are treacherous to say the least. Jim Tankersley in the WaPo:

The plan includes big tax cuts for the wealthiest taxpayers, such as an elimination of taxes on capital gains and dividends, along with reductions in the corporate tax rate and the top personal income tax rate. But it also would significantly expand a tax credit that benefits families with children. …

The question for Republicans is whether such plans can survive Democrats’ attacks — which wounded 2012 GOP nominee Mitt Romney in an effort to portray him as a candidate of the rich. To defend themselves, leading Republicans said, candidates will need to do a better job explaining how their policies would help working families — and they said the party will need to nominate someone who can credibly address the concerns and aspirations of the middle class.


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  1. Vectorman Inactive

    Like Diogenes, William F. Buckley said that he was looking for an honest answer on the double taxation of regular (C corporation) dividends.  They should be considered a before-tax business expense, much like the business paying interest on a loan, and taxed only at the distribution level.  Instead we have this mix-mash of “Qualified” dividends that are distributed tax free to non-profit organizations and low income (i.e., retired) people but are effectively double taxed at the middle and high class levels. Ordinary (Bank) interest is still taxed at the low income level, so why not dividends?  Both interest and dividends are effectively a return on capital, which was the reason the income tax was initiated – it was not for ordinary wages!

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  2. Petty Boozswha Inactive
    Petty Boozswha

    Mr. Pethokoukis, I’d be interested in your opinion on the recent interest in reviving Henry George’s “single tax.” Some of Mr Piketty’s critics like Peter Orzag or Joseph Stiglitz  say his analysis of inequality should discriminate between productive capital and land and housing inflation. Could conservatives accept this as part of a consumption tax package to encourage more efficiency?

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  3. The Reticulator Member
    The Reticulator

    I was a big fan of Reagan’s tax cuts.  In fact, I was luke-warm toward him until after he was elected and it became clear that he really meant it.

    However, it’s hard to get excited about any tax reform at this point.  Anything that has Boehner’s and McConnell’s fingerprints on it is going to be corrupted beyond all recognition by the time it gets enacted.

    The bigger problem is the corruption of our political system caused by our entitlement system and crony corporate welfare.  We can’t do anything about entitlements before removing the corporate welfare.  Psychologically, morally, practically, we just can’t.  We’re going to make zero progress towards tax reform, entitlement reform, or anything else with that hanging over us.  There are just too many powerful people who are invested in the corruption, and too much unfairness involved in leaving that alone while asking other people to sacrifice.  (Which they will have to do.  Any reform will produce losers.)

    As to where to start, I’d suggest Big Bird’s welfare check.  Baby steps first.  It’s not the only possible place to start, but it should be doable. Solyndra-type programs would be another.

    If we’re too afraid of the blowback that will come from cleaning those up, we may as well forget the whole works.

    The Russian empire survived the gulags, Cambodia survived the Killing Fields, and this will pass, too.

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