Quick Thought on the Progressivity of Lee-Rubio

My post on why Lee-Rubio matters focused not on the substance of the proposal, but rather on the basic political bargain behind it and on how it contrasts with other tax reform proposals that have been embraced on the ideological right. Though I briefly touched on some of its potential political weaknesses, I didn’t really address the chief objection of its liberal as opposed to its conservative critics, which is that the shift to a consumption tax base will likely make it less progressive than the current tax code. To call a tax system “progressive” is merely to say that the tax burden as a share of income rises with income. To say that Lee-Rubio in its current form is more progressive than the Hall-Rabushka flat tax or the FairTax is not to say very much. Moreover, the shift to a consumption tax base from an income tax base is almost certain to reduce the effective tax burden on high-income households substantially, as high-income households are more likely than lower-income households to save and invest. This is one reason advocates for progressive consumption taxation often favor making tax rates on consumption more steeply progressive than current tax rates on income, and it is why some liberal proponents of progressive consumption taxation, like Robert H. Frank, believe it should be accompanied by higher levels of wealth taxation, like estate taxation. (Similarly, if we make investments tax-free, it is less important that we reduce the corporate tax rate.) Suffice it to say, approaching Lee-Rubio from the right, from the perspective of activists who find the flat tax and the FairTax appealing, gives you a different perspective than approaching it from the left, where there is great skepticism towards any shift to a consumption tax base, and where if anything there is pressure to increase the taxation of capital income. Some conservatives prefer the idea of a flatter tax code, and they see Lee-Rubio’s (modest) concession to progressivity as a concession too far. I am more inclined to think that Lee-Rubio is not progressive enough, which is part why I recommended a more incremental turn towards a consumption tax base, via the use of expanded tax-free savings accounts. Either way, it’s clear to me at least that Lee-Rubio is more a basis for discussion than a fully fleshed-out proposal. It is far more plausible than the flat tax or the FairTax, but it has a long way to go. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute Policy Fellow. He is a contributing editor at The Atlantic and National Affairs, a member of the ...

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