Rubio Tax Plans: Brackets, Child Credit, and Business Overhaul

The Rubio tax plan, developed by Senator Marco Rubio with Senator Mike Lee during the 2015–2016 presidential cycle, would have collapsed the seven federal income tax brackets into three, replaced the corporate income tax with a 25% cash-flow consumption tax, eliminated individual taxes on capital gains, dividends, and interest, and created a $2,500-per-child credit that could offset payroll taxes. It was never enacted as a package, but several of its ideas surfaced in the 2017 Tax Cuts and Jobs Act.¹

Individual Rates and Brackets

The first version of the Rubio-Lee plan used just two rates: 15% and 35%, with the 35% rate starting at $75,000 for single filers.¹ That structure would have raised taxes on some upper-middle-income households, so a revised version added a middle bracket.

The three-bracket version set rates at 15%, 25%, and 35%. For single filers, the 25% rate applied above $75,000 and the 35% rate began at $150,000. For joint filers, the thresholds doubled to $150,000 and $300,000.² The top federal rate at the time was 39.6%, so the plan cut the ceiling by more than four percentage points.³

Personal Credit Replacing the Standard Deduction

The standard deduction and personal exemptions were gone. In their place: a flat, refundable $2,000 personal credit per taxpayer, or $4,000 for a married couple filing jointly.⁴ Because it was refundable, a filer whose income tax liability was under $2,000 could get the rest back as a refund. The Rubio campaign specified that only people who actually filed returns would receive the credit.⁵

Nearly all itemized deductions were repealed. Only two remained: charitable contributions and mortgage interest, with the mortgage deduction capped at $300,000 of home mortgage debt.⁶ The plan also eliminated the Alternative Minimum Tax, repealed the estate and gift taxes, and scrapped the head of household filing status.¹

Ending head of household status mattered more than it sounded. That status gives single parents wider brackets and a larger standard deduction than plain single-filer status. Without it, single parents would lean on the $2,000 personal credit and the new child credit to make up the gap. The Tax Policy Center found that a mother of two earning the minimum wage could end up slightly worse off under the plan.¹

The $2,500 Child Credit

The family-focused piece was a $2,500-per-child credit, more than double the $1,000 credit available at the time.⁵ Two features set it apart from the existing child tax credit.

First, it could offset both income taxes and payroll taxes. That matters for lower-income working families, whose federal tax burden is mostly Social Security and Medicare withholding rather than income tax. The practical benefit at the very bottom was limited, though, because the Earned Income Tax Credit already offset much of the payroll tax burden for those households.¹

Second, the credit phased out at much higher incomes. Phase-out started at $300,000 for married couples, reducing the credit by $25 for every $1,000 above that. A one-child family fully lost the credit around $400,000; families with more children kept partial credits well beyond that. Full benefits reached deep into upper-middle-income territory.

Business Tax Overhaul

The plan replaced the traditional corporate income tax with a cash-flow consumption tax, capped at 25% for both C corporations and pass-through entities (S corps, partnerships, and sole proprietorships) with income above $150,000.⁴ The federal corporate rate at the time was 35%.

Two mechanical shifts defined the new business tax. Businesses could deduct the full cost of capital investments (equipment, buildings, intellectual property, even land) in the year of purchase rather than spreading the deduction over years of depreciation. And businesses could no longer deduct interest paid on debt; in exchange, individuals receiving interest income would owe no tax on it.⁴

Flipping interest treatment would have changed how companies think about financing. Under existing law, debt is cheaper than equity for most businesses because interest reduces taxable income. Take that deduction away and the tax advantage of borrowing disappears, pushing companies toward retained earnings or stock.

The plan also moved to a territorial system, meaning active foreign earnings of U.S. multinationals would generally be exempt from U.S. tax.⁶ Under the worldwide system it would have replaced, foreign profits were subject to U.S. tax when brought home, which encouraged companies to keep cash overseas.

No Tax on Capital Gains, Dividends, or Interest

At the individual level, the plan zeroed out taxes on capital gains, dividends, and interest income.¹ That went further than most Republican plans of the era, which called for lower capital gains rates rather than elimination.

The rationale was to end what proponents called double taxation: corporate profits are taxed once at the business level and again when shareholders receive dividends or sell appreciated stock. Zeroing out the individual layer, paired with the new 25% business tax, would leave a single layer on business income. The plan also repealed the 3.8% Net Investment Income Tax and other Affordable Care Act–related taxes.¹

For assets acquired before the effective date, the plan envisioned exempting only gains accrued after that date, with some form of transition tax on previously unrealized gains. The available details on that transition were incomplete.¹

Cost and Who Benefited Most

The Tax Foundation estimated a static revenue loss of roughly $414 billion per year, or about $4 trillion over a decade. Even after factoring in projected economic growth through dynamic scoring, the plan still showed a $1.7 trillion shortfall over the first ten years.⁶

Every income group would have received a tax cut, but the size of the cut varied dramatically. Tax Policy Center figures for 2017:¹

Lowest fifth of earners: average tax cut around $250, or 1.9% of after-tax income
Middle fifth of earners: average tax cut around $1,400, or 2.5% of after-tax income
Top 1% (income above roughly $700,000): average tax cut of nearly $163,000, or 10.4% of after-tax income
Top 0.1% (income above roughly $3.7 million): average tax cut exceeding $900,000, or 13.6% of after-tax income

Two provisions did most of the tilting: eliminating taxes on capital gains and dividends, and repealing the estate tax. Both flow primarily to households with substantial investment assets and inherited wealth. The Tax Policy Center added a structural caution: if the resulting deficits were eventually closed through spending cuts, lower-income households, who rely more on government services, would bear a disproportionate share of the cost.¹

What Made It Into the 2017 Tax Cuts and Jobs Act

The Rubio-Lee package never passed on its own, but several of its ideas showed up in the Tax Cuts and Jobs Act signed in December 2017: a lower corporate rate, full expensing for business investment, a territorial international system, and estate tax reduction. Each appeared in less aggressive form than the original proposal.

The child credit fight was the most visible piece of Rubio’s direct influence. During final TCJA negotiations, Rubio and Lee pushed for a larger refundable portion of the credit and threatened to vote no without it, initially proposing to fund the expansion through a slight bump in the corporate rate above 20%.⁷ Republican leadership raised the refundable portion of the child tax credit from $1,100 to $1,400.

The final TCJA doubled the maximum child tax credit from $1,000 to $2,000 per child, with the refundable portion set at $1,400 and indexed to inflation. That fell short of the $2,500 Rubio-Lee target and lacked the full payroll tax offset, but it was the largest expansion of the credit in nearly two decades. The broader framework, particularly the integration of individual and corporate codes through investment income exclusions, still comes up as Congress debates the future of the TCJA provisions set to expire.

1
Tax Policy Center. An Analysis of Marco Rubio’s Tax Plan
2
Tax Foundation. Comparing the 2016 Presidential Tax Reform Proposals
3
Internal Revenue Service. Individual Income Tax Rates, 2015
4
Tax Policy Center. The Rubio-Lee Tax Reform Plan Raises Important Issues But Would Add Trillions to the Debt
5
Tax Foundation. The Rubio-Lee Personal Refundable Tax Credit
6
Tax Foundation. The Economic Effects of the Rubio-Lee Tax Reform Plan
7
Mike Lee US Senator for Utah. Sens. Rubio, Lee Reaffirm Commitment to Child Tax Credit Expansion