The editors of the Wall Street Journal have the mirror image of my reaction to the senator: They wish he had stuck with his immigration bill longer, and they don’t like his tax plan. That’s in keeping with their two-decades-long hostility to the idea of a tax credit for children. Here’s what they say on that issue:
His recently announced tax-reform plan, introduced with Utah’s Senator Mike Lee, reflects the tensions inside the GOP. It proposes dropping the corporate rate to 25%, a consensus figure. But it proposes remarkably timid reductions in marginal tax rates for individuals, leaving the top rate at 35% on relatively modest incomes. Instead the plan’s centerpiece is a large, new tax credit—$2,500 per child.
With this proposal, Senator Rubio makes himself the party’s most visible ally of the “new” Republican idea that the Reagan tax-cutting agenda is a political dead end, and that the party now must redistribute revenue directly to middle-class families. It’s not clear how Candidate Rubio would hope to win a tax-credit bidding war with Hillary Clinton, who’d see and raise on the size of the credit and make it refundable to non-taxpayers. The Rubio tax credit looks like an obvious political gambit with no economic growth payoff.
A few points I think are worth bearing in mind:
1) The Journal ignores some of the pro-growth features of that tax plan, such as its abolition of depreciation rules in favor of full expensing and its abolition of taxes on capital gains and dividends. For some supply-siders, these provisions have more potential to stimulate growth than rate reductions do.
2) A top tax rate of 35 percent may be too timid for the Journal’s taste; it may think that a lower rate would be braver. But it is a low rate by historical standards. The top rate has been lower than 35 for only 5 of the last 80 years–and during those years the tax code treated investment much worse than Lee-Rubio do, or than the Journal’s editors would want.
3) These people who allegedly believe that “the Reagan tax-cutting agenda is a political dead end”: I don’t know who they are, or if they exist, but if they do they are wrong. And Rubio is certainly not their ally. His plan is a huge tax cut, after all, and like Reagan’s tax cuts it combines provisions designed to boost economic growth and provisions that, while defensible on the merits, are there for reasons of fairness and political appeal. One might say that the “economic growth payoff” from that second set of provisions consisted of helping to get the first group enacted.
4) Republicans created the tax credit for children and then expanded it without ever losing, or getting into, a bidding war with liberals. The denunciations of the idea from the likes of Paul Krugman and Isabel Sawhill do not suggest that a bidding war is finally going to start. The Journal has a blind spot on the politics of the child tax credit. In the 1990s, it claimed that “the middle class will resent being treated as pawns in a political game that will only produce a tax code that is more complex and less rational.” Nothing like that ever happened. Republicans should, as always, give the Journal’s arguments careful attention, but in this case they have good reasons to disagree with its conclusions.