Would the “Family Fairness and Opportunity Tax Reform Act” (FFOTRA) Actually be Fair For Everyone?
After his notable fights for a balanced budget amendment, and railing against new gun control laws, Senator Mike Lee of Utah may be best known by the American people for spearheading a drive to defund The Affordable Care Act for a period of one year.
And now Sen. Lee has taken up another cause. Several days ago, as part of his Constitution Day address to the American Enterprise Institute in Washington DC, Sen. Lee unveiled a piece of legislation that he intends to propose to the US Senate. This proposed legislation is called the “Family Fairness and Opportunity Tax Reform Act” (FFOTRA). Sen. Lee believes that the current US tax structure violates the US Constitution by being neither fair nor consistent.
Sen. Lee’s proposal would, in his opinion, level the playing field between middle and upper class taxpayers and emphasize the interest of middle-income parents, not just the high-earners, investors and entrepreneurs. Among the key points of the proposal, it establishes just two federal income tax rates, 15 percent for income up to $87,500 for a single taxpayer, and double the deduction for joint filers. Above that income level, there would be one flat tax rate of 35 percent. Additionally, his plan would offer a new mortgage interest deduction available to all homeowners, capped at $300,000 of principal, as well as a charitable tax deduction offered to all taxpayers, not just those who currently itemize. It would also repeal any taxes associated with Obamacare.
The centerpiece of the proposal, however, is a new child tax credit (NCTC). In addition to the existing $1,000 per child tax credit, this proposal would provide an additional $2,500 deduction per child under age 18. This can be used to offset federal income and payroll taxes. Sen. Lee’s contention is that under the current tax code, parents are actually being penalized by being taxed twice for their contributions to senior entitlement programs, first when they pay their own taxes, and again when they incur the financial burden of raising future tax contributors, namely their children.
While this proposal would provide a substantial tax cut for middle income families with children, the elimination or modification of many itemized deductions for more affluent taxpayers with no children would result in increased taxation, particularly for those living in already high tax states such as New York, New Jersey and California. Further, the cap on mortgage interest deductions at $300,000 of principal would certainly not bode well with people living in regions that already have high housing costs. This could also result in the acceleration of outbound tax migration of those who can afford to move from states that can least afford to lose them.
Federal legislators would certainly not support a proposal that might alienate a large segment of their constituency, and may even adversely affect them personally, if they reside in these states.
In addition to being a strong constitutionalist attempting to emulate a more compassionate taxation policy espoused by James Madison and Abraham Lincoln, Sen. Lee is also a realist. I don’t think he honestly believes that this legislation, as written, will ever become the law of the land. I believe that his real intent is to open a dialog in Congress for reforming the Federal Tax Codes.
As a potential Presidential candidate, promoting tax breaks for middle class families would certainly ingratiate him and his party with the core of the Democratic base, and at the same time dispel the myth that the Republican Party is only the Party of the rich.