The Core Proposals of the Rubio-Lee Tax Plan
A look at the Rubio-Lee tax proposal and its aim to simplify the code by shifting the tax base to favor family formation and capital investment.
The Tax Cuts and Jobs Act of 2017 (TCJA) was one of the most significant reforms to the U.S. tax code in decades, enacted to simplify the tax system and provide tax relief. The law fundamentally altered how individuals, families, and businesses are taxed by changing personal income tax brackets, deductions, and credits, while also overhauling business taxation. While some of its provisions are permanent, many of the changes affecting individuals are scheduled to expire after 2025 unless extended by Congress.
Taxation of Individuals and Families
The personal income tax structure consists of seven tax brackets, with rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The bracket a taxpayer falls into depends on their taxable income and filing status.
The law placed significant limits on certain itemized deductions. The deduction for state and local taxes (SALT), which includes property and income taxes, is capped at $10,000 per household. The deduction for medical expenses is limited to the amount that exceeds 7.5% of a taxpayer’s adjusted gross income (AGI), and miscellaneous itemized deductions were suspended. The law preserved the deductions for home mortgage interest and charitable contributions, though the home mortgage interest deduction is now limited to interest on up to $750,000 of mortgage debt.
To compensate for the limits on itemized deductions, the law nearly doubled the standard deduction while suspending personal exemptions through 2025. For 2025, the standard deduction is $15,000 for single filers and $30,000 for married couples filing jointly. This change simplified tax filing for many households, as more taxpayers now find it advantageous to take the standard deduction rather than itemizing.
The Child Tax Credit provides up to $2,000 for each qualifying child under the age of 17. For some taxpayers, a portion of the credit is refundable through the Additional Child Tax Credit (ACTC). For 2025, the refundable portion is capped at $1,700 per child.
Interest income is generally taxed at ordinary income tax rates. Long-term capital gains and qualified dividends are taxed at preferential rates of 0%, 15%, or 20%, depending on the taxpayer’s income.
Taxation of Business Income
The TCJA established a flat corporate income tax rate of 21%. Income from pass-through entities, such as S-corporations and partnerships, is not taxed at the business level but passes through to the owners to be taxed at their individual rates. Many owners of these businesses may be eligible for a Qualified Business Income (QBI) deduction of up to 20%.
The law introduced 100% bonus depreciation, a form of immediate expensing for qualified capital investments like machinery and equipment. This allows a business to deduct a large portion of the cost of an investment in the year it is placed in service. This incentive is phasing out; the rate is 40% for property placed in service in 2025 and is scheduled to decrease to 20% in 2026 before being eliminated.
The law also limited the deduction for business interest expenses. The deduction is generally limited to the business’s interest income plus 30% of its adjusted taxable income (ATI), and any disallowed interest can be carried forward. Small businesses with average annual gross receipts below $31 million for 2025 are exempt from this limitation.
The law moved the U.S. from a worldwide tax system to a hybrid-territorial one, which generally provides a 100% dividend exemption for foreign income U.S. corporations receive from foreign subsidiaries. To discourage profit shifting to low-tax countries, the law introduced the tax on Global Intangible Low-Taxed Income (GILTI).
System-Wide Structural Reforms
The Alternative Minimum Tax (AMT) was repealed for corporations, and its impact on individuals was reduced. The TCJA increased the individual AMT exemption amounts and indexed them for inflation, meaning far fewer households are subject to the tax. For 2025, the exemption is $88,100 for single filers and $137,000 for married couples filing jointly.
The federal estate tax, a tax on the transfer of a person’s assets after death, remains in effect but with a significantly higher exemption amount. For 2025, the federal estate and gift tax exemption is $13.99 million per individual. Assets transferred above this amount are subject to a top tax rate of 40%. This higher exemption is scheduled to be cut by about half at the end of 2025.
The 3.8% Net Investment Income Tax (NIIT) remains in effect, applying to investment income for individuals, estates, and trusts with modified adjusted gross income above certain thresholds. The thresholds are $200,000 for single filers and $250,000 for married couples filing jointly. Income subject to the NIIT includes capital gains, dividends, and interest.