The Lee-Rubio Tax Plan: A Step in the Right Direction

Senators Mike Lee (R-Utah) and Marco Rubio (R-Fla.) have released a blueprint for federal tax reform called the “Economic Growth and Family Fairness Tax Plan.”

The plan’s goal is to simplify the tax code and pave the way to a flatter income tax, reducing federal income taxes to just two tax brackets and eliminating capital gains taxes, says NCPA senior fellow Pam Villarreal.

For the individual tax structure, the plan introduces a two-tier system to replace the current seven tax brackets. This plan moves America from a progressive tax structure to a bifurcated flat tax.

Consider:

– All income earned up to $75,000 for singles and $150,000 for joint filers would be taxed at 15 percent.
– All income earned over those thresholds would be taxed at 35 percent.
– Thus, for a married couple filing jointly, the lowest income earners would pay more (rising from 10 percent to 15 percent), while the highest income earners would pay less (falling from 39.6 percent to 35 percent).
– However, there would be a large marginal tax hike for couples earning $150,000 to $200,000 a year, of 7 percentage points.

The Lee-Rubio tax plan would reduce the complexity of the tax system and eliminate taxes on the productive activities of saving and investment. However, though a two-tiered system moves closer to a flat tax, the 35 percent bracket would raise the tax burden for households earning less than $200,000 a year, compared to the current system. A 22 percent to 25 percent top rate would be less burdensome.

More From NCPA: