The push for tax reform ran into last-minute complications in the Senate, as Republicans were arguing about the composition of the bill’s tax cuts and searching for places to drum up more revenue. Now, it appears they have the votes to pass the bill. One proposed change to the bill introduced by Senators Marco Rubio (R., Fla.) and Mike Lee (R., Utah) remains in flux. It is worth passing.
At this writing, the Rubio-Lee amendment would make the child tax credit refundable against payroll taxes, and raise the proposed corporate rate from 20 percent to 22 percent to offset the lost revenue. We have long been advocates of cutting the corporate rate from its current 35 percent, which far exceeds the international average. Doing so would make the United States a more attractive place to do business and would spur economic growth. But we would also like to see a cut to the payroll tax, especially for parents, who raise future contributors to the entitlement programs funded by payroll-tax receipts.
As it stands now, the bill contains a steep corporate-rate cut, yet provides no payroll-tax relief. So the Rubio-Lee proposal is a sensible one. Some of the opponents make a sharp distinction between income and payroll taxes, viewing only the former as warranting relief; it is not a distinction that holds up to scrutiny. Taxes are taxes, and the payroll tax is the primary tax on households that earn less than $25,000 a year. Opponents also say that cutting their taxes would disincentivize them from working, which is a bizarre inversion of the truth.
While the corporate-rate cut Rubio and Lee propose would be a little less dramatic than the one in the bill currently, it would still make the American economy more competitive (the average international rate is 24 percent) and provide a significant boost to growth. There may, however, be better ways to pay for their proposal. Republicans could, for instance, get rid of the state-and-local–tax deduction for corporations while leaving the corporate rate at 20 percent.
The GOP is tantalizingly close to passing a bill that makes federal policy less hostile to investment in businesses and delivers tax relief for families and the middle class. The Rubio-Lee amendment may be a small part of the push for tax reform, but it delivers on the second goal without endangering the first. Republicans should find a way to vote for payroll-tax relief.
READ MORE:
Why I Oppose the Rubio-Lee Amendment
The Stakes on Tax Reform