I share one of Veronique de Rugy’s concerns about the plan: If not modified or coupled with serious spending restraint, it would increase the federal debt quite a bit. I disagree, though, with her two arguments against the plan’s enlargement of the child tax credit.
She argues, first, that middle-class families would be better off with a tax code that raised the same amount of revenue as Lee-Rubio but featured lower rates and no expanded child credit, because lower rates would do something, however small, for economic growth. Making these trade-offs requires some speculation. It appears that under those constraints Lee and Rubio could have proposed tax rates that are lower across the board by around 3 points more than they did. This extra reduction might yield a little more growth, and that growth might increase middle-class wages a bit. But would it yield so much more growth that it would beat the plan’s tax relief for families? You would have to have enormous faith in the power of marginal rate reductions to believe that. And because a plan that combines rate reductions with a larger credit offers more tax relief for more people than a purely rate-reducing plan would, the former seems much more politically viable and thus more likely to yield any extra growth than the latter.
Second, she argues that the enlarged child credit is no substitute for a “fundamental reform” of old-age entitlement programs, which are unsustainable and unfair in their current form. Nobody is arguing that the child credit is such a substitute. Conservatives have suggested a number of fundamental reforms–progressive indexing and personal accounts for Social Security, capped premium support for Medicare, and a higher eligibility age for both–that have considerable merit. These reforms would, however, leave the programs’ bias against large families intact (if in some cases reduced). There would still be a need to address the “parent penalty,” that is. De Rugy objects to the phrase but does not contest the argument underlying it, and favorably cites an article that makes that argument and proposes a variable payroll tax to remedy it. I don’t have any real objection to that proposal, although a larger credit seems to me to have the advantage of greater simplicity. And, of course, that alternative proposal is also vulnerable to her main arguments against the expanded child credit.