Acton Institute Powerblog

Explainer: What You Should Know About the Rubio-Lee Tax Plan

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rubio-leeWhat is the Rubio-Lee Plan?

The plan—officially titled the “Economic Growth and Family Fairness Tax Plan”—is a white paper in which Senators Marco Rubio (R-Florida) and Mike Lee (R-Utah) lay out a tax reform proposal they believes will “resolve these major problems in the tax code.”

What’s in the plan?

The plan has two main sections, one “pro-growth” and one “pro-family.” The pro-growth side of the plan includes seven recommended changes:

  • Full expensing for all businesses
  • Creating parity on the taxation of business income
  • Elimination of extraneous business tax provisions
  • Elimination of interest from tax base
  • Transition to an international dividend exemption system
  • Carryover of losses and transitions
  • Reforming the treatment of health care in the tax code

The pro-family side has four proposed changes to the tax code:

  • Tax bracket and filing status consolidation
  • Child tax credit consolidation and enhancement
  • Consolidation of filing system
  • Ending high effective marginal tax rates for the poor

What are some specifics of the plan?

The plan would simply tax code structure and lower rates by consolidating the numerous existing income tax brackets into two simple brackets—15 percent and 35 percent. Individuals earning up to $75,000 or married couples making up to $150,000 would pay 15 percent, and the 35 percent top rate would apply for everyone above that line. (The current top rate is 39.6 percent.)

The plan would also eliminate or reform deductions (sparing only mortgage interest and charitable contribution deductions), including an elimination of the marriage penalty, which imposes higher taxes on married couples than if they had filed individually. A new $2,500 child tax credit, applicable to payroll tax liabilities as well as for the income tax, would be included.

On the business side, the proposal eliminates double taxation on all business income. The Senators also would recommend that businesses only be taxed in the country where income is actually earned, rather than double-taxed when the money is brought back home.

How much would the plan cost?

Estimates are that implementing the plan would mean a reduction in federal tax revenues of $4 trillion over ten years. However, if the intended effects of economic growth are taken into account the cost could be about $2 trillion. So unless the plan is coupled with spending reductions, the result would be an additional $2-4 trillion added to the deficit over a decade.

What is the likelihood the plan will be adopted?

Slim to none. 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. They can recommend the plan to their colleagues, but there is no chance that it will be adopted wholesale. And if it were to get through Congress, President Obama would surely veto the plan.

Still, the white paper shows what tax reform (at least from GOP) will look like when it does come. As Ryan Ellis of Americans for Tax Reform says, the Rubio-Lee plan is “what pro-growth looks like in the 21st century.”

Joe Carter Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).

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