LEE-RUBIO TAX PLAN

Scott Sumner, over at The Money Illusion, writes about the pros of the Lee-Rubio tax plan and why liberals should support it:

  1. Ends the marriage penalty.

  2. Ends the taxation of capital income.

  3. The corporate tax becomes based on income earned in the US, (which is the approach used by most other countries.) The rate would be similar to European tax rates. Interest would no longer be expensed. (Recall that interest income is no longer taxed (point #2), so it balances out.)

  4. Capital investments are expensed, no depreciation schedules.

  5. Ends most itemized deductions.

  6. AMT eliminated.

He also writes about how it could be made better:

Now for the supposed flaws.

  1. It’s not progressive enough.

  2. It doesn’t raise enough revenue.

There’s a very simple fix for both problems—add a third bracket! The proposal calls for a 15% rate up to $75,000, and 35% above that level (or above $150,000 for couples.) Simple solution—add a 50% rate for income above $250,000 (or $500,000 for married people.)

Keep in mind, the tax plan involves switching from an income tax to a consumption a tax. You can read the rest of his piece here.

I think just about any alternative to the current system is good. Especially one not based on income and uses consumption instead. It also gets rid of many deductions to simplify it. Unfortunately, even if it did make it through Congress the president would never sign it into law.

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