Part of the GOP’s time warp problem — it’s always 1981 — has been making tax reform synonymous with lowering marginal tax rates. But as conservative reformer Robert Stein puts it, “Too often, advocates of comprehensive tax reform have focused on the particular means of Reagan’s plan — the lowering of marginal income-tax rates — rather than on its more general ends: correcting economic distortions caused by government policy, lightening the tax burden on American families, and encouraging more work and investment.” He continues: “Lowering tax rates today could still enhance the incentives to invest, particularly in the corporate sector. But the distortions caused by marginal tax rates are not nearly as great as they were in 1980. And attempts to solve other problems caused by the tax code itself — like the biases in favor of consumption over saving, or home building over business investment — could never in themselves garner the public support necessary for a major overhaul.” Moreover, this tends to underestimate the impact of other reforms in generating economic growth — immigration, regulatory reform, trade policy and energy policy.

Sens. Mike Lee (R-Utah) and Marco Rubio (R-Fla.) have adopted a new conservative tax approach, one that is more ambitious but also focused on wider social goals. They write that “it bears remembering that the end goal of economic policy isn’t simply growth, but freedom—clearing the obstacles from each American’s unique pursuit of happiness.” In other words, it aims to increase family income, lessen the cost of parenting, promote work and spur growth.

It’s basic components include an enhanced child tax credit of $2500, expansion and reform of the earned income tax credit and corporate tax reform to promote investment and growth in the U.S.:

On the business side, we would cut the current 35% corporate tax rate to make it competitive in the global economy. The exact rate will be determined as we continue to shape the legislation, but it must be low enough to end the problem of corporate inversions and the loss of American jobs to other nations. We will also allow companies large and small to deduct their expenses and capital investments while integrating all forms of business taxation into a consolidated, single-layer tax. . . .
We will also propose that businesses only be taxed in the country where income is actually earned, rather than double-taxed when the money is brought back home. The way to reverse corporate inversions and bring capital in off the sidelines isn’t to punish companies for obeying outmoded laws, but to change those laws to make America once again the best place in the world to pursue happiness and earn success.

The senators also want to go after “cronyist giveaways” in the tax code.

Reform conservatives have tended to be too defensive about the family-friendly provision. The senators are right: It’s good social policy; not every tax change has to be about cutting rates. (Minus the Obamacare tax add-on the top marginal rate would go back to 35 percent.) There are ample pro-growth items to satisfy supply-siders and address real problems of American uncompetitiveness.

A senior aide to Lee concedes it has not yet been scored for revenue neutrality and not all specifics are finalized, but this is a policy proposal, not a bill. He does confirm that most deductions on both individual and business side will either be gone or reformed. Lee’s individual side reform gets rid of all of the individual deductions except charitable giving and a capped mortgage interest deduction. That is certainly consistent with a broader tax base at a modest rate. Backers of the concept like Stein estimate that “under the proposal, a married couple with two children earning $70,000 would get a tax cut of roughly $5,000 per year compared to current law. ” That is better policy and better politics than say a flat-tax, which would almost certainly be more regressive than the current code.

The plan is conservative in the best sense of the word. It tries to accommodate competing aims, not zealously strive for one goal at the expense of others. It protects the most important elements of civil society (thereby insuring modest government and vibrant voluntary associations) — the family and charitable entities. It reduces cronyism and other barriers to free market success. And it strengthens the work ethic and upward mobility.

It is a serious plan worth studying and a challenge both to Democrats whose idea of tax reform is simply raising taxes on the rich and to single-minded supply siders whose ideas don’t attract much support outside staunch conservative bastions and Big Business. If you are going to change the image and focus of the party, this would sure be one way to do it.