Some Tax Bravery, Please

A response to the child-credit promoters

By Amity Shlaes & Matthew Denhart

In a column for NRO earlier this week, we wrote about the tax proposal currently being put forward by Senators Marco Rubio (R., Fla.) and Mike Lee (R., Utah). We admire both senators and think their plan has some great components – particularly the reforms to the corporate tax code. But, as we wrote in our column, the plan fails to do enough to promote economic growth, instead emphasizing "pro-family" initiatives such as a greatly expanded child tax credit. People are inherently entrepreneurial and need to be offered the same hope that corporations would get under the Rubio-Lee plan.

Responding to our column with two blog posts, National Review's Ramesh Ponnuru defends the expanded child credit and accuses us of being inconsistent in our criticism of the Rubio-Lee plan. The core of Ponnuru's criticism is that we call for a much lower top marginal tax rate while opposing the child credit and wanting to "keep a bunch of tax breaks."

Senators Rubio and Lee would set the top marginal income-tax rate at 35 percent, and, as troubling, would dramatically lower the income thresholds so that moderately successful professionals, people typically considered middle-class, would find themselves paying that top rate. So, yes, Ponnuru is correct that we would like to see a much lower top rate.

Ponnuru however doesn't quite get our position right when he writes that we "cherish" certain tax breaks, such as the deductions for state and local taxes and the home-mortgage-interest deduction. In our column, we criticized the Rubio-Lee plan's intent to curb these existing deductions in order to expand another tax break, the child credit. But that doesn't mean we cherish these older tax breaks. Rather, we find it perverse to pull back existing benefits from one group (in this case, professionals in high-tax states) simply to redistribute them to another group (families with children). Much better, of course, would be a comprehensive rewrite of the tax code to rid it of special-interest provisions and use the savings to lower rates across the board. But when the Rubio-Lee plan makes its centerpiece giving new benefits to a particular group at the expense of others, it falls short of this ideal.

In his second blog post, Ponnuru claims that the magnitude of the tradeoff between the child credit and a lower top marginal rate is not all that dramatic. In other words, even if the Rubio-Lee proposal did not expand the child credit, and if those savings were applied to lowering the top rate, that rate could not come down much lower than the proposed 35 percent. Ponnuru also alleges that we have no perspective and that tax rates have been high over the last many decades.

But that's our point generally: The Lee-Rubio plan replicates errors of preceding Republicans. The plan does not go nearly far enough in cutting marginal taxes. We think we do bring some perspective. Before 1913, the income tax did not even exist. And some presidents since, including Calvin Coolidge and Ronald Reagan, did manage to get rates down well below 35 percent. Coolidge's Treasury secretary, Andrew Mellon, was willing to trade away a much-loved break, the tax deduction for municipal bonds, in order to get his top marginal income-tax rate down.

The primary season is the time for candidates to propose low rates. But the Rubio-Lee plan, at least this iteration of the plan, wouldn't do much cutting and indeed would even raise taxes on some people. The focus needs to be on cutting personal rates along with corporate rates to unleash economic growth, rather than using the tax code to offer new government benefits to targeted groups. We know many of the presidential candidates, from both parties, are capable of something bolder.

As Amity wrote with Chris Edwards in the Wall Street Journal last summer, a super version of the Roth IRA would do more for kids' future than any number of credits. So would a strong, growing economy. Plenty of voters would understand the power of such plans – but only if candidates can bear to present them.

Amity Shlaes chairs the board of the Calvin Coolidge Presidential Foundation, where Matthew Denhart serves as executive director.

© Copyright 2015 National Review

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