Three Quick Points on Lee-Rubio

by Ramesh Ponnuru

The senators have proposed an amendment to scale back a tax cut for corporations and let people use the child tax credit to cut their payroll-tax liability. The bill now cuts the corporate tax rate from 35 to 20 percent. At the moment–although a lot of things have been changing with this tax bill and maybe this will too–the amendment would set it at 22 percent. The effect should be to leave the impact of the bill on federal revenues roughly the same.

Three points. First, there has been some confusion about the senators’ priorities here. They are happy to cut corporate tax rates–they are backing an amendment that would just pare back the rate cut a little–and they would be happy with leaving the entirety of that rate cut in place so long as the tax bill finds another way to make room for their payroll-tax relief. They reiterated that they are open to other “pay-fors” in a release today.

Second, a reader writes, “Correct me if I’m wrong, but doesn’t this amendment actually improve incentives to work? The Journal says [in an editorial I criticized the other day--RP] the opposite.” You’re not wrong. The amendment should cut effective marginal tax rates by 15.3 points on income up to $26,000 or so.  A household making $20,000, that is, will be able to keep an additional $15.30 of every $100 of additional earnings it makes. That’s a supply-side improvement.

Third, Senator John Cornyn of Texas tweeted an interesting defense of the Senate Republicans’ tax bill two days ago. Bernie Sanders had complained that it would give a single mother with a minimum-wage job and two kids only $75. Cornyn responded: “She would pay zero income tax, receive a doubling of standard deduction and a $2000 child tax credit under Senate bill.” That’s not actually true under the current version of the bill. It would be true if Lee-Rubio passes. Senator Cornyn can make his claim true by voting yes on it.

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