On Wednesday, presumed 2016 presidential candidate, Senator Marco Rubio (R-Fla.) and Senator Mike Lee (R-Utah) released an anticipated tax reform plan that seeks to move to full business expensing, reduce corporate tax rates to 25 percent for both C and S corporations, while eliminating both capital gains and dividend taxes and moving to two tax brackets for individuals (15 and 35 percent).
Additionally, the Rubio-Lee proposal would move to a territorial system, thus domestic corporations would pay a 6 percent one-time tax on the $2.1 trillion in profits they are currently deferring overseas. Moreover, the Rubio-Lee proposal would eliminate interest deductibility for businesses outside of the financial-services industry.
At the individual level, the standard deduction would be replaced with a $2,000 personal credit, and all itemized deductions would be eliminated, except for the deduction for charitable contributions and a limited version of the home mortgage interest deduction. As reported by new outlets, the 35 percent rate would apply to income over $75,000 for individuals ($150,000 married filing jointly).
Based on what was released, it is not clear how the proposal would affect the federal budget deficit. Senator Lee, a favorite among conservatives, released a tax reform bill in 2013 that focused on the individual system and sought more robust preferences for families. The Tax Policy Center, a project of the Brookings Institution and the Urban Institute, reported that the Lee plan would lose around $2.4 trillion over a decade, or about 6 percent of projected federal revenue.
Former Ways & Means Committee Chairman Dave Camp’s 2014 legislation repealed a range of special depreciation and cost recovery schedules, as part of his plan to reduce the top corporate tax rate from 35 percent to 25 percent over a five-year period without adding to the deficit. The Camp legislation would also have extended depreciation schedules raising hundreds of billions of dollars in revenue over a 10-year period.
AGC will review the Lee-Rubio proposal more closely when the details are released in full, and continue to engage lawmakers and policy experts on comprehensive pro-growth tax reform.
For more information, please contact Brian Lenihan at lenianb@agc.org or (202) 547-4733.