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Senators Marco Rubio (R-FL) and Mike Lee (R-UT) released their plan to reform the federal tax code last week. The proposal would overhaul both the individual and corporate tax codes, provide a significant boost to the economy, lift incomes across the board, and result in a $1.7 trillion tax cut over a ten year period.

The Basics of the Plan

The plan includes a number of pro-growth provision. It would cut the top tax rate on business income to 25% for both corporate and noncorporate businesses, move to full expensing of capital investments, shift to a territorial system, and integrate the corporate and individual tax code by eliminating taxes on capital gains and dividends.

The proposal would also simplify the individual tax code. It would reduce the number of tax brackets from seven to two with a 15 and 35% tax rate, replace nearly all deductions and exemptions with a refundable personal credit, and create a new $2,500 child tax credit.

The Reform Grows the Economy by 15%

According to the Tax Foundation’s Taxes and Growth Model, the changes proposed by Rubio and Lee would increase the size of the economy by 15% over the next ten years, boost wages by 12.5%, and increase employment by nearly 2.7 million jobs.

This level of growth in equivalent to additional GDP growth of 1.44 per year over the next ten years. On top of the 2% growth projected by CBO, this is an average of 3.44% annual growth over the next ten years. This level of growth is still below the growth seen in the 1950s and 1960s and only slightly above the growth seen in the 1970s, 1980s, and 1990s. This is the type of growth one would expect following a fundamental change toward a neutral, consumption-based tax code.

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