The WSJ Flips Out on Rubio and Lee

by Ramesh Ponnuru

Senators Mike Lee and Marco Rubio are proposing to amend the Senate tax bill to cut the corporate tax rate a little less — where the current bill would take it from 35 to 20, the senators would set it at 22 — and help middle-class parents a little more, by letting them claim the child tax credit against payroll taxes. As expected, the Wall Street Journal is editorializing against the proposal.

Also as expected, the editorial is longer on sneering than analysis. Thus Lee is dismissed as Rubio’s “political sidecar.” Never mind that Lee sponsored a child-credit expansion before Rubio did, and endorsed somebody else for president last year; never mind, as well, that this false putdown has nothing to do with anything.

The Journal makes four arguments against the Lee-Rubio amendment. I’ll address them out of order to finish with the Journal’s strongest point. First, it indicts the senators for political cowardice because they are not cutting payroll taxes directly and taking the heat for endangering Medicare and Social Security. Both senators have in fact advocated entitlement reform, Rubio in senior-heavy Florida. (The Senate is, however, considering the tax bill under reconciliation procedures that don’t allow major changes to Social Security.) But the senators’ point in this debate is that entitlements place an extra burden on parents. An across-the-board reduction in payroll tax rates would not remedy that problem; a child credit that applies against income and payroll taxes is one of the few measures that would. (See here for an elaboration of that point.)

Second, the Journal claims that “deliver[ing] checks to folks who owe no income tax . . . is a disincentive to work and we would have thought antithetical to conservative principles.” No further explanation is given for this peculiar thought. Why should we think that letting people shield more of their earnings from payroll taxes makes them less eager to make those earnings in the first place? Do we have any evidence, or plausible theory, for this counterintuitive view? What is this alleged conservative principle that makes payroll-tax burdens sacrosanct?

Third, Lee and Rubio are supposedly being unreasonable negotiators.

Senate tax writers have already indulged the Rubio-Lee caucus beyond what any two Senators deserve. The original proposal increased the credit to $1,650 from the current $1,000. The pair demanded more. So when Republicans received a revenue windfall from repealing the ObamaCare coverage mandate, they raised the credit to $2,000. Now that also isn’t enough. Senators who demand ransom should at least stay bought.

The Journal has made several attacks on the expansion of the child tax credit in recent weeks. What its editorials have never acknowledged is that the Republican bills abolish the dependent exemption. A family in the 15 percent tax bracket would lose about $600 per child from that provision; many families in the 25 percent bracket would lose about $1,000 per child from it. Most of the child-credit expansion, in other words, just holds parents harmless. Neither parents nor Lee and Rubio are being indulged. And the senators have never made their colleagues any pledge to quit trying to make what they consider to be improvements to the bill.

Fourth, we get to the Journal’s best shot — which is still weak. It says that a 20 percent corporate tax rate would be better for economic growth than a 22 percent one. This is probably true. But only very marginally so. “A point or two more may seem like no big deal,” the Journal admits. That’s right: It does seem like no big deal. The Journal tries to make it seem like a big deal by pointing out that Ireland has a corporate tax rate of 12.5 percent. It offers no reason for thinking that the difference between a corporate rate 7.5 percent higher and 9.5 percent higher than Ireland is going is a big deal in terms of economic growth. There may be better ways than scaling back corporate-tax relief to make room for the child-credit expansion Lee and Rubio want, but a 20 percent corporate rate should not be considered imperative.

The editorial ends by slamming Rubio, saying that “voters looking for a candidate who understands what makes America — and American families — prosper will have to look elsewhere.” Rubio is backing a very substantial reduction in corporate tax rates. To say that whether that cut is a bit more substantial still is the difference between prosperity and its absence is evidence of a loss of perspective. Or at least evidence that some of the Journal’s editors should switch to decaf.

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