The non-partisan Tax Policy Center recently published an analysis of Florida Sen. Marco Rubio’s tax reform proposal and it turns out there are some problems. While Rubio proposes a number of innovative ways to improve the country’s sclerotic tax code, absent massive federal spending cuts, the top tier Republican presidential candidate’s plan would add trillions of dollars to the national debt.
While it lowers effective tax rates across the board, it would also disproportionately benefit the very wealthy – both in absolute dollars and in terms of the size of the rate reduction.
The report finds:
“The proposal would cut taxes at every income level, but high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income. Overall, the plan would cut the average tax bill in 2017 by about $3,150, boosting after-tax income by 4.4 percent.
“However, the highest-income taxpayers (0.1 percent of the population, or those with incomes over $3.7 million in 2015 dollars) would experience an average tax cut of more than $900,000, 13.6 percent of after-tax income. Households in the middle fifth of the income distribution would receive an average tax cut of almost $1,400, or 2.5 percent of after-tax income, while the poorest fifth of households would see their taxes go down an average of about $250, boosting their after tax income by 1.9 percent.”
Rubio’s plan would also reduce federal revenues by $6.8 trillion over the first ten years, and by an additional $8 billion in the decade after that. Without specifying the (implausibly) huge spending cuts that would necessitate, TPC analysts assume that money – and all of the interest it accumulates – would have to be added to the national debt.
The Rubio plan actually contains a number of innovative proposals, including one that would transition the United States away from the current income-based tax system to a modified consumption-based tax by removing taxes that apply to savings and investment income. There would be numerous theoretical benefits to such a move, not least of which is removing the tax penalty to savings that the current code imposes.
Rubio’s plan would also do away with the Alternative Minimum Tax, repeal many existing deductions, and add substantially to the tax breaks that go to families with children.
The bottom line though, according to TPC’s analysis, is that the proposal, at least at the tax rates recommended by the Rubio campaign, just isn’t feasible.
“[T]the plan poses the fundamental concern that barring extraordinarily large cuts in government spending or future tax increases, it would yield persistently large, and likely unsustainable, budget deficits.”