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1 Michael Schuyler & William McBride, The Economic Effects of the Rubio-Lee Tax Reform Plan 1 (2015)

handle is hein.taxfoundation/ecefrubltx0001 and id is 1 raw text is: The Economic Effects of the Rubio-Lee FOUNDATION Tax eform Plan By Michael Schuyler, PhD & William McBride, PhD FACT Senior Fellow Chief Economist Mar. 2015 No. 457 Executive Summary Senators Marco Rubio (R-FL) and Mike Lee (R-UT) have developed a plan to reform the individual and corporate income tax codes. Major elements of the plan would: Reduce the number of tax brackets to two (15 percent and 35 percent) and eliminate nearly all itemized deductions; Create a new child tax credit of $2,500; Replace the standard deduction and personal exemption with a refundable personal credit; Create a top tax rate of 25 percent on both corporate and noncorporate business income; Allow businesses to deduct the cost of investments when they occur (full expensing); Move to a territorial tax system that would exempt active foreign income of U.S. corporations; Integrate corporate and shareholder taxes to eliminate double-taxation; Eliminate most business tax credits and many special deductions; * Eliminate the estate tax. Tax Foundation economists used the Taxes and Growth Model to estimate the growth and revenue effects of the Rubio-Lee plan. We did not model the proposal's transition provisions. Key Findings * According to the Taxes and Growth Model, the Rubio-Lee tax reform plan would increase the size of the economy by 15 percent over the long run. This is equivalent to an average of additional annual growth of 1.44 percent over a ten- year adjustment period. * The plan would boost investment by nearly 49 percent, wages by 12.5 percent, and raise the level of employment by nearly 2.7 million jobs. The plan would increase federal revenue on a dynamic basis by an annual $94 billion in the long run, following an estimated $1.7 trillion revenue loss over the initial ten year period. On a static basis, the plan would cost $414 billion annually. The plan would have widely shared benefits, with low-income earners receiving a large boost to their after-tax incomes. The plan's main drivers of growth are the lower cost of investment-from full expensing, corporate integration, and lower tax rate on businesses-and the increased incentive to work-from the lower rates on personal income.