Sen. Marco Rubio (R-FL) riled many Tea Party conservatives by supporting a bipartisan immigration reform bill in 2013 to grant amnesty to illegal immigrants. Although the bill died in the House, many thought Rubio, 43, had hurt himself politically in terms of a future 2016 GOP presidential nomination by backing such a controversial plan.
On Wednesday the young senator was back rolling the dice again, this time by daring to become the first major GOP presidential aspirant to offer a comprehensive plan for overhauling the federal tax system – and in the process skirting GOP tax reform dogma.
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Past major GOP tax overhaul plans, including last year’s failed proposal by Rep. Dave Camp of Michigan, then the House Ways and Means Committee chair, have been designed to be “revenue neutral.” That means the sum total of all tax cuts and increases cannot add to the federal debt. Republicans hooted President Obama’s fiscal 2016 budget and tax proposal earlier this year because it would allow deficits to persist well into the future.
Yet Rubio is offering a plan that potentially could add trillions of dollars to the debt in the long term, depending on many other variables, including how the recovery turns out. While he is hoping congressional budget and tax scorekeepers eventually bless his proposal with a favorable assessment, Democrats and some Republican rivals may belittle the plan for adding to the deficit.
Rubio’s proposal – to help speed up the economic recovery – would consolidate and cut federal tax rates while offering a generous new child tax credit to help struggling middle class families.
“I would say the vast and overwhelming majority of Americans will see significant tax relief here,” Rubio told reporters at the Capitol. Some proponents say the plan could increase the size of the economy by 15 percent in the long term.
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Under Rubio’s approach, taxes for individuals, families, businesses and investors would be cut while offsetting some costs by eliminating a raft of long-standing tax breaks and loopholes.
The current seven individual tax rates would be consolidated into two brackets of 15 percent and 35 percent – a slight reduction from the current top rate of 39.6 percent. Meanwhile, the top corporate tax rate would fall from 35 percent to just 25 percent.
Much of this resembles Republican tax-reform boilerplate – not unlike the major tax proposal advanced by Mitt Romney, the 2012 GOP nominee. It drew general praise from conservative economists and groups, including Club for Growth, the Heritage Foundation and Americans for Tax Reform.
There was far less enthusiasm for the centerpiece of the Rubio-Lee plan – a $2500-per-child tax credit to help ease financial burdens for middle-class Americans. This is the group Rubio and other presidential wannabes hope to woo.
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The existing child tax credit is worth as much as $1,000 per qualifying child, depending on a family’s income. President Obama and a group of Senate and House Democrats want to increase substantially the value of the child credit for middle-income families. Many conservatives would much rather pour more resources into slashing tax rates than handing out more tax breaks to the middle class.
“Child credits do not improve the incentive to work, save, invest or take entrepreneurial risks,” wrote David Burton, Heritage’s senior fellow in economic policy, on the foundation’s DailySignal website. “The revenue used to fund the additional child credit would be better used to lower tax rates. This would further improve economic growth and increase incomes for all families.”
The long-term cost of the plan is an even bigger problem for Rubio.
The conservative-leaning Tax Foundation’s analysis of the Rubio-Lee proposal found it could raise $94 billion in economic growth after a 10-year transition. But that’s only if analysts used so-called “dynamic scoring” that credits how individuals and businesses would likely react to the change.
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When scored with traditional methods used by the non-partisan Congressional Budget Office and the Joint Committee on Taxation, the Rubio-Lee plan would result in revenue losses of $414 billion a year after a 10-year transition period, William McBride, chief economist for the Tax Foundation, wrote this week.
McBride added, “We believe the dynamic estimate is much closer to reality.” But the use of dynamic scoring is far from settled on Capitol Hill – even after House Republicans voted earlier this year to require congressional scorekeepers to use it when evaluating the impact of changes in tax and spending policy.
Keith Hall, the new CBO director, will have a big say in how heavily Congress can use dynamic scoring to maximize the projected economic benefit of future tax changes. And congressional Democrats are certain to challenge dynamic scoring, both in approving tax cuts for wealthier Americans and cutting spending programs to benefit low and moderate income families.
Rubio, in offering a tax overhaul plan that might one day add to the deficit, seems prepared to try to straddle traditional GOP tax dogma with the political realities of broadening his appeal to middle-class Americans.
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Addressing reporters yesterday, the Florida senator said he would prefer analysts use dynamic scoring that would consider the explosive growth he claims his business tax cuts would unleash. He said his plan was a formula for future economic growth, though he stopped well short of claiming the tax cuts would pay for themselves, as some “supply-side” economic enthusiasts have done.
He stressed that Congress and the White House would also need to agree to savings in major entitlement programs, such as Social Security and Medicare, to slow the rate of growth of the national debt.
“We need entitlement reforms in America to save Medicare and Social Security and to bring our long-term debt under control,” he said. “But you cannot cut your way out of our predicament; you need growth to accompany it.”
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