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Rubio Looks To Increase Deficit With $6.8 Trillion, Big Donor-Friendly Tax Plan

Feb 17 • 510 Views • View Comments

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Like Ted Cruz, Donald Trump, Jeb Bush — pretty much every other Republican candidate — Marco Rubio is promoting a tax plan with a multi-trillion dollar price tag — $6.8 trillion, to be specific.

And like the rest, Rubio also wants to give a massively disproportionate boost in after-tax income to the wealthy few. There’s a reason Wall Street billionaires and hedge fund managers are backing his candidacy. And that’s why Koch network donors are seemingly getting serious about throwing some money his way. Here’s more, from the New York Times’s Josh Barro:

[Rubio’s] new plan would raise incomes for the top one-thousandth of taxpayers by 8.9 percent — that is, an average tax cut of more than $900,000 per year — because of its sharp cuts in tax rates on business income and capital income.

New York Times: The Upshot: Rubio Tax Cut Got Bigger and Bigger

By Josh Barro, 2/16/16

If you want an insight into what Senator Marco Rubio’s instincts on policy are, just look at what happened when he got his hands on another senator’s tax cut plan: It became about three times larger, and way more tilted toward the rich.
Mr. Rubio’s recently announced tax plan is a descendant of the “Family Fairness and Opportunity Tax Reform Act,” introduced in 2013 by Mr. Rubio’s fellow Senate Republican, Mike Lee of Utah. Mr. Lee’s plan was notable for shifting the Republican debate on taxes toward helping families with children and away from cutting the tax rates the richest Americans pay.
The Lee plan went for a sizable tax cut: $2.4 trillion over 10 years, or about 6 percent of then-projected federal revenues, according to the Tax Policy Center, a joint project of the center-left Urban Institute and Brookings Institution think tanks. The top 1 percent of taxpayers would have gotten a 2.8 percent increase to their after-tax income, because the plan cut top tax rates on both regular and capital income by a few points. (The top 0.1 percent did better, with a 3.8 percent increase to income.) But middle-income families with children would have done even better, on a percentage basis, than those groups: Their after-tax income would have gone up 5.1 percent, because of a tax credit of $2,500 per child on top of the current $1,000.
In March 2015, Mr. Lee teamed up with Mr. Rubio to develop a revised version of the tax plan. As Mr. Rubio got involved, the price started to soar. The plan was rebranded as the Economic Growth and Family Fairness Tax Plan, and as usual, “economic growth” was code for large tax cuts for owners of capital.
The original Lee tax plan imposed a 20 percent tax rate on income from capital gains and dividends; the Rubio-Lee plan cut this rate to zero. Rubio-Lee also introduced new tax breaks for businesses: a cut in the corporate tax rate to 25 from 35, and a preferential rate of 25 percent for business income taxed through the individual tax code.
To be fair, this was not purely Mr. Rubio’s intervention: Mr. Lee said in 2013 that his tax plan addressed only the individual income tax, and corporate tax reform would come later. But at the time, Mr. Lee had not telegraphed that his plan would cut taxes on capital income so sharply as to invert the current situation of double taxation of business income and actually levy lower tax rates on business owners than on many of the people who work for them.
Rich people with capital income weren’t the only big winners under the Rubio-Lee plan; there was also a large new benefit for people with low incomes. The original Lee plan had included a $2,000-per-person tax credit replacing the standard deduction, but you could take the credit only against income tax you actually owed. The Rubio-Lee plan generously revised this credit to be “refundable,” meaning it could lead to a negative income tax bill for people with low incomes.
But there’s a catch: It’s not clear the senators had decided exactly how refundable the tax credit would be. A spokesman for Mr. Lee told me it would be fully refundable, meaning essentially any adult American human with a pulse would get $2,000 a year, even if he or she had no taxable income. But a spokeswoman for Mr. Rubio said the credit “would be tailored to ensure that our reforms would not create payments for new, nonworking filers.” Because the Rubio-Lee proposal was never developed into legislative text, it’s impossible to say who was right about what the plan would have done, but even the more limited approach would have been expensive.
The expansiveness of the Rubio-Lee plan led James Pethokoukis, an economic policy researcher at the conservative American Enterprise Institute, to invoke Oprah Winfrey. “She was like, ‘You get a car, you get a car.’ Well this is ‘You get a tax cut, you get a tax cut,’ ” he said in an interview last spring.
But Mr. Rubio apparently was not yet done with his Oprah act.

In October, now running for president, Mr. Rubio announced his own stand-alone version of the tax plan, with a crucial change. His joint plan with Mr. Lee had included just two tax brackets for regular income: 15 percent on the first $150,000 for married couples, and 35 percent on income above that. Mr. Rubio is now calling for three tax rates instead of two: 15 percent on the first $150,000, 25 percent on the next $150,000, and 35 percent only on income above that.

This change avoids a pitfall of the Rubio-Lee plan: It would have imposed higher marginal tax rates on many taxpayers with high but nonastronomical incomes. If they did not have children to take tax credits against, they would have seen little benefit from Rubio-Lee. Adding the 25 percent bracket allows Mr. Rubio to play Ms. Winfrey to this group as well.
But all these changes have come at a cost: According to the Tax Policy Center, Mr. Rubio’s current plan would cost $6.8 trillion over the 10-year budget window. That is, 16 percent of currently projected federal tax revenues over that period, and nearly three times the size of Mr. Lee’s plan from less than three years ago.
The tax cut has grown on all dimensions, at the top and at the bottom. Because of the partial refundability of the $2,000 tax credit, Mr. Rubio’s plan would cut taxes for the bottom fifth of taxpayers by $251 a year on average, compared with just $79 under Mr. Lee’s original plan. (To calculate this figure, the Tax Policy Center assumed Mr. Rubio would allow the credit to be applied against Social Security payroll taxes, as Mr. Rubio and Mr. Lee had already proposed for their child credit.) Mr. Rubio is proposing a nearly 2 percent boost in annual income for this group.
But Mr. Rubio’s biggest tax cuts, by far, are at the top. His new plan would raise incomes for the top one-thousandth of taxpayers by 8.9 percent — that is, an average tax cut of more than $900,000 per year — because of its sharp cuts in tax rates on business income and capital income.
Of course, all that assumes Mr. Rubio could find a way to finance a 16 percent overall cut in federal taxes. Mr. Rubio is counting on strong economic growth, induced by his capital tax cuts, to pay for his plan to cut taxes sharply on nearly everyone. But recent experience with tax cuts on capital income — no apparent economic boost came from the Bush tax cuts of 2003 — does not suggest that will be possible.
Ms. Winfrey may have shouted “Everybody gets a car,” but she was giving cars to only 276 people. By comparison with Mr. Rubio, she stands out as an exemplar of fiscal conservatism.

To reach a member of the American Bridge 21st Century press team, email Ben Ray, Communications Director, at ben@americanbridge.org

 

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