- - Thursday, March 5, 2015

ANALYSIS/OPINION:

Everybody talks about tax reform but nobody ever gets around to doing something about it. Now two Republican senators, Marco Rubio of Florida and Mike Lee of Utah, have introduced a proposal that embraces both pro-growth and pro-family concerns and simplifies the mess that is the current federal tax code. It’s a start.

They would cut the U.S. corporate tax rate, the highest in the industrialized world, to a globally competitive 25 percent, and eliminate taxes on capital gains, dividends and interest. The Rubio-Lee plan would move the United States to a system of territorial taxation, with corporate profits taxed only once, when and where the profits are earned, rather than twice, and would enable full business expense deductions.

The proposal would further repeal the Alternative Minimum Tax, create a new $2,500 child tax credit, reduce the number of tax brackets to two and put the top personal rate back where it was when Mr. Obama took office. All deductions, except for mortgage interest and contributions to charities, would be replaced by a $4,000 tax credit for couples.

This is a bold answer to the public cry that somebody ought to do something about the tax code that Jimmy Carter denounced as “a disgrace to the human race.” This should spark serious debate among the worthies who say they’re ready to be president. The two senators offer specifics. Some will like them and others will not, but the proposal is a point of departure from where we’re stalled now.

Ronald Reagan didn’t invent the Kemp-Roth tax bill, but embraced it as part of his campaign to win the Republican nomination in 1980 and then the White House. The candidates in 2016 will have to produce a plan for growth or borrow the proposal of someone else, and Rubio-Lee is a good place to start the conversation.

Republican politicians and the economists were divided on what they reckoned were competing goals until Jack Kemp and Ronald Reagan started talking about the possibilities for breaking the Groundhog Day cycle. Democrats spend money nobody has, and Republicans dutifully raise taxes to reduce or eliminate the deficits such spending inevitably incurs. The Republicans are then tossed out of office and the Democrats return with more spending until they are inevitably dispatched to what President Obama calls “a licking.”

It’s a vicious cycle. The Reagan administration adopted pro-growth policies including the tax cuts that stimulated growth, producing more revenue, and by the 1990s Congress could balance the federal budget. That didn’t last long; the Democrats restored Groundhog Day to insist on more spending.

By the mid-‘90s, budget balancing rather than growth — the so-called “root-canal economics” — began once more to dominate Republican thinking. Pro-growth policies lost their allure. Since then deficit hawks and supply-side tax cutters have pounded each other to an impasse. The result is higher taxes, slow growth and spiraling deficits. Neither spending cuts, though imperative, nor crippling tax increases alone can produce the economic growth needed to get the country moving again. The Rubio-Lee proposal shows the way to the debate that could lead to the tax reform that everybody says is crucial.

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