Don’t Worry About the Revenue in Sen. Mike Lee’s Tax Plan

Utah Senator Mike Lee unveiled a very promising tax plan yesterday. Like all Republican plans, it cuts rates, broadens the base and simplifies the tax code. But it also has a number of other very progressive elements and Lee says it is expected to take in revenues of approximately 18-20% of GDP. Overall, it’s a very intriguing plan and has rightfully been praised around the internet today.

But a couple of people have pushed back on the revenue amount. Business Insider’s Josh Barro, who titled his piece “Here’s a Republican Tax Plan that Doesn’t Suck,” calculated the amount he would pay under Lee’s tax plan and to his surprise, found himself receiving a tax break:

The question is, who pays more to offset those tax cuts? Lee hopes his plan would collect 18 to 20% of GDP in revenues, meaning it’s not a big tax cut overall. And as with a lot of Republican tax plans, he may have trouble hitting that target.

At first glance, it looks like his plan would raise taxes on affluent people without children. But I’m such a person, and when I ran Lee’s plan against my 2012 taxes I found I would have gotten a $1,400 tax cut. His plan raises my top marginal tax rate from 28% to 35% but more than offsets that because most of my income only gets taxed at 15%

Slate’s Matt Yglesias calculated his own tax liability under Lee’s plan too and found a similar result, leading him to describe it as “like smoke and mirrors.” The Atlantic’s Derek Thompson isn’t sure how Lee gets to a revenue-neutral tax plan as well and recommends that the freshman senator tax capital gains as ordinary income.

Here’s the thing: it doesn’t matter how much revenue this tax plan raises. What matters is the structure of it and that Lee is aiming for revenues between 18-20% of GDP. Once the Joint Committee on Taxation, the Tax Policy Center, Brookings and any other organization score the plan, we’ll have a better idea about how much revenue the plan actually raises and the distributional impact of it.

But we now know that Lee is interested in reforming the tax code in a way that helps the middle class. His plan also isn’t hugely regressive like all of the flat tax plans other Republicans have promoted. If the score comes back with revenues below Lee’s estimate, then he has to tinker with the rates or possibly add a third bracket. He could follow Thompson’s advice and tax investment as ordinary income. If he wanted to really be aggressive, he could lobby for a carbon tax.

There are plenty of ways Lee could increase the revenue totals in his plan. As it gains steam, how he does so will be vital. But right now, the important part is that Lee is putting forward an honest, smart plan that has huge potential. It’s been a long time since a Republican Senator has done that – especially someone as conservative as Lee is. He deserves credit for that.


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