This might be the quietest big news of the week. The American Enterprise Institute is hosting an event for Utah Senator Mike Lee to unveil his new family-friendly tax reform. If Lee’s plan is much like Robert Stein’s, the plan would involve expanding the child tax credit and making it fully refundable against payroll tax liabilities, cutting taxes on investment and cutting or eliminating deductions that are mostly used by high-earners while keeping the top marginal income tax rate at the pre-Obama 35%. This could be game changer for the Republicans on taxes.
Romney’s plan to cut income taxes across-the-board by 20% would have primarily benefited higher-earners and Romney famously declared his plan would have done nothing for the 47% of American families who had no net income tax liability (but many of whom had a payroll tax liability). Romney’s deal with the American public was that high-earners would get a large tax cut and everybody else would get either a small tax cut or… the indirect benefits of cutting taxes on high-earners. Rand Paul’s tax plan is to cut taxes on high-earners and raise the tax liabilities of many middle and lower-middle-class families – and Paul’s plan would hit families with children especially hard. A family of four with two children earning $50,000 would see a tax increase of $340 over current law. A family of five with three children would see a tax increase of $1477.
A family-friendly tax reform would offer the electorate a new deal from Republicans Family-friendly tax reform would cut the tax liabilities and improve the work incentives of middle-class parents and parents who are struggling to get their families into the middle-class. Taking a page from Tony Abbott, Republicans would highlight the contribution made by working parents who are investing in raising children. Robert Stein-style tax reform would make the tax code more growth-friendly by encouraging capital investment and cutting taxes on the distribution of corporate profits to shareholders. It would also offer a new deal to high-earners (especially high-earners without minors). The Republicans would support a lower top marginal tax rate than the Democrats, but, because of fewer deductions, many high-earners would pay more in taxes than they do now.
The Republican party would still be the better deal for most high-earners over the long-term. Obama-sized government would involve ever-larger tax increases and many (though not all) of those tax increases would fall on high-earners. Republicans would still be the party of lower spending, lower regulation and (compared to the Democrats) lower taxes. The Republican party would still be the better party for most high-earners, but the GOP would prioritize changing the tax code to benefit the middle-class while increasing economic growth. With his unimpeachable Tea Party credentials, Mike Lee might be exactly the right the guy to explain that family friendly tax reform is an authentically conservative populism that is both good policy and good politics.