Tax Analysts Blog

Mike Lee’s Tax Plan Was Promising. Until It Wasn’t.

Posted on Mar 17, 2015

In 2013 Utah Sen. Mike Lee released a tax plan. It was interesting and very expensive. In 2015 Lee released a new tax plan, this time with help from Florida Sen. Marco Rubio. It was less interesting and much more expensive.

Lee’s 2013 proposal – hailed as an example of “reformicon” economic thinking – seemed to signal a shift in GOP priorities – a move away from the party’s traditional focus on marginal rate cuts and toward family-friendly tax relief. By contrast, Lee’s 2015 plan marks the resurgence of the GOP’s rate cutting fixation.

Are the reformicons done for?

The Lee-Rubio Plan

Critics have panned the Lee-Rubio proposal for losing fantastic amounts of money while giving enormous tax cuts mostly (but not quite exclusively) to the nation’s richest taxpayers.

Even ardent supporters, who tout the plan’s potential to turbocharge economic growth, acknowledge that it will blow a giant hole in the budget (to the tune of $1.7 trillion over the first 10 years, according to the Tax Foundation; using less enthusiastic assumptions, the number would be much higher). Lee’s original plan was expensive, too. According to an estimate from the Tax Policy Center (which is not so excitable regarding growth), it would have reduced federal revenues by $2.4 trillion over 10 years.

But Lee’s original plan was also much more interesting than the one he released this year. It was hailed as a victory for the reformicons, a group of conservative policy entrepreneurs who seemed intent on bucking GOP orthodoxy on a range of issues, including taxes.

The reformicon tax agenda was laid out clearly in several articles by Robert Stein, a former Treasury deputy assistant secretary for macroeconomic analysis during the George W. Bush administration. Republicans, he insisted, needed to shed their fascination with marginal rate cuts.

For more than two decades, free-market economists and policymakers have championed an agenda of comprehensive tax reform. Modeled on President Reagan's 1981 tax cuts, their plans have sought to combine further cuts in marginal income tax rates with relief for corporations and investors, along with a profound simplification of the entire federal tax code.

All worthy goals, Stein noted – but not ones with real political appeal. “Unlike Reagan's immensely popular initiative, the reformers' campaign has gained little traction with the public,” he pointed out, “and has not been enacted even in times of Republican dominance in Washington.”

Post-Reagan GOP tax reforms failed because they were no longer relevant. “Lowering tax rates today could still enhance the incentives to invest, particularly in the corporate sector,” he wrote. “But the distortions caused by marginal tax rates are not nearly as great as they were in 1980.”

Stein made the case for a new sort of Republican tax plan – one that focused on reducing burdens for overtaxed parents. The Stein plan – which eventually made its way into the original Lee proposal – would have established new, much more generous child credits designed to encourage child rearing.

Lee’s desire to boost child credits found critics on both the left and right, with liberals noting his plan’s limited benefit for poor families (another tax cut for the rich!) and conservatives fretting over the opportunity cost of boosting child credits in the first place (think of the lost marginal rate cuts!).

But the plan, at least as originally proposed, still marked an important shift in GOP tax thinking – just not a very durable one. Lee never abandoned his support for cutting marginal rates, but he clearly subordinated that policy goal to other, more progressive impulses. It was not a perfect plan – far from it. But it did try to change the conversation in Washington.

By contrast, however, the new Lee plan demonstrates the resilience of rate cutting ideology in conservative policy circles. The only way Lee could preserve his enhanced child credits was to pair them with a sweeping set of tax cuts for the nation’s most fortunate few. Apparently, family-friendly tax reform is only tolerable when married to plutocrat-friendly policies.

That said, I’m not giving up on the reformicons just yet. You can’t judge a party – or at least its deep thinkers – by its preelection policy gyrations. The GOP is currently engaged in the usual quadrennial silliness that primaries make all but inevitable. The real test, or at least the first one, will come after the Republicans choose a nominee. Faced with a general election, family-friendly tax reforms might have new appeal.

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