Little Marco (Rubio) is right for once: The GOP tax bill does virtually nothing for the bottom 50% of American households, but his amendment to "fix" the problem reveals why the whole effort is so misguided and heading for fiscal calamity.

To wit, the lower 50% of US households pay virtually no income taxes----accounting for hardly 3% of Uncle Sam's total collection from that levy. So to modify an old saw, you can't return blood back to a turnip.

During the most recent year (2015) there were 78.7 million tax filers with adjusted gross income (AGI) under $40,000, and these filers accounted for 52% of the 150.5 million total filers. But relatively speaking, the bottom half doesn't have much income, to begin with, and when you cascade it through the tax filters almost nothing comes out at the bottom by way of tax payments to the IRS.

First, these 78.7 million filers had $1.448 trillion of AGI, which represented just 14.2% of total AGI of $10.2 trillion. But when you run these filers through the tax filter of deductions, exemptions, and credits, 45.8 million or nearly 60% of them owed no income tax at all.

While these filers did report $650 billion of AGI, here's the thing: You can't, obviously, give any of that back to them because their effective tax rate is already zero!

Next, the 32.9 million filers in the bottom half who actually did owe at least a dollar of income taxes--- reported $800 billion of AGI (7.8% of the total). However, only $411 billion of this was "taxable income" owing to personal exemptions, the standard deduction etc.

Moreover, after application of the bottom bracket rates (mostly 10%) and tax credits (such as the $1,000 child credit) against computed liabilities, these tax filers ended-up paying the grand sum of just $45 billion in 2015.

Little Marco proposes to solve the problem with something called child credit "refundability" as we will dissect in a moment. But the above data on the bottom 78.7 million tax filers starkly reveal the brick wall the good Senator from Florida is running into, and why the GOP is barking up the wrong tree entirely in attempting to help the left-behind of Flyover America with deficit-financed income tax cuts.

To wit, the bottom half of taxpayers accounted for just 14.2% of the AGI, 5.7% of the total taxable income and merely 3.1% of total income tax collections ($1.46 trillion in 2015). In other words, the much maligned Federal income tax code actually filters out so much of the bottom half's AGI that they end up paying just 3.1% of it to Uncle Sam.

In short, the current IRS code is tantamount to a get out of jail free card for the bottom half of income tax filers---permitting them, in the rhetorical idiom of the anti-taxers, to "keep" $1.403 trillion of their $1.448 trillion of AGI. That may be good or bad tax/social policy, depending upon your viewpoint, but what it surely ain't is "oppressive".

Then again, current tax law is not exactly confiscatory at the top end of the income ladder, either---even if any proposed cut gives rise to full-throated demagoguery from the Dems. In this context, it so happened that the 18,061 filers with AGI above $10 million in 2015 paid $140 billion in Federal income taxes.

Now, at first, glance that sounds like some kind of run-amuck progressivity since a tiny number of wealthy taxpayers comprising just 0.02% of the 78.7 million filers in the bottom half---- paid three times more in aggregate income taxes.

Still, it's not exactly time to bring out the violins for the tax-oppressed wealthy. These same 18,061 fillers reported $539 billion of AGI. So when all the deductions, credits, deferrals and loopholes were applied, this tiny sliver of taxpayers at $10 million-plus AGI paid 25.6% of their income to Uncle Sam.

Not exactly fair, of course, but hardly oppressive, either. Indeed, the problem is that the current39.6% top marginal rate only yields 25.6% in tax payments owing to the gauntlet of deductions and loopholes through which the reported income of the wealthy is filtered.

As tax reformers and flat-taxers have always dreamed, it would be far better to blow-away the entire IRS code and all its loopholes and deductions and tax the wealthy at, say, 28% on their comprehensive income, as did the landmark Reagan tax reform of 1986. But K-Street and the PACs own the tax code-----so flattening reform is not at all what the GOP is doing.

Instead, it is so obsessed with jamming a $1.8 trillion 10-year cut of corporate and pass-thru business taxes into a $1.5 trillion deficit allowance that it is twisting its 470 page tax bill into a pretzel trying to accomplish the former, while peddling a simulacrum of tax cuts for the middle class and personal income tax payers.

And that gets us to the resulting fiscal debauchery and Little Marco's inconvenient 11th-hour crusade for more generous child care credits for the bottom half.

Obviously, you can't put blood back in the turnip for the bottom half by cutting marginal rates. For instance, if you cut the bottom bracket from 10% to 5% it probably wouldn't stimulate a whole lot of supply-side response in the form or more work and more production among the impacted households, but they likely wouldn't send you a thank you card, either.

That's because cutting the bottom marginal tax rates in half, would reduce aggregate taxes on the bottom half of households (78.7 million filers) by the grand sum of $20 billion annually. That amounts to $4.88 per week per filer----enough for one stop to grab the proverbial Starbucks cappuccino and banana.

At the same time, marginal rate cutting overwhelmingly benefits the top because as shown above in exaggerated form for the $10 million+ league, the wealthy and near-wealthy pay all the income taxes.

Thus, the 6.7 million taxpayers who constitute just 4.3% of all filers paid $860 billion in income taxes during 2015. That amounted to nearly 60% of everything Uncle Sam collected----meaning that the overwhelming share of marginal rate cuts would go to less than 5% of taxpayers.

Nevertheless, that has not stopped the GOP tax writers from trying to recreate the halcyon days of Ronald Reagan when, in fact, the top marginal rate was lowered from 70% when he took office to just 28% under the 1986 tax reform bill. But hogtied by the nation's soon to be $31 trillion public debt (2027) and their foolish commitment to using the $1.5 trillion deficit allowance for business cuts, the GOP tax writers have been reduced to nibbling at the edges on marginal rates.

Thus, it now appears the Republican members of the House/Senate Conference have agreed to cut the top bracket from 39.6% to 37.0%. Again, that won't ignite a whirlwind of supply-side growth, but the cut will overwhelmingly go to the top 5% of taxpayers and will also cost another $100 billion in revenue loss over the decade.

And that's what apparently sent Little Marco into a tizzy of rage. In good Keynesian fashion----as to both the economics and politics---he wants to put meaningful money in the "pockets" of the lower half, but has been refused by the leadership for weeks now because they have spent the entirety of their ill-conceived deficit allowance and then some on other items of greater salience in Gucci Gulch.

Moreover, by agreeing to raise the child credit from $1,000 to $2,000 as per the Senate passed bill, they had already consumed $584 billion of their deficit allowance. But the provision which doubled the child credit also left the refundable portion at just $1,000---meaning that it would also be leaving a good share of the 78.7 million filers in the bottom half out in the cold.

As we have seen, nearly 46 million of them do no pay any tax under current law and would, therefore, get no value from the increased child credit. Similarly, another 10-20 million will owe less than $1,000 before credits and therefore wouldn't stand to benefit, either. In fact, the entire group of 33 million who owed any income tax at all in 2015 paid an average of just $1,360 to Uncle Sam----meaning very view would actually benefit from the higher credit (after netting out the loss of the $4,050 personal exemptions).

In short, the overwhelming share of the bottom half would not be able to take advantage of the $2,000 per child credit because they don't owe that much. So if you don't make it refundable it would amount to a chimera, and that's apparently what got Little Marco on his high horse:

“My concern is that if you found the money to lower the top rate ... you can’t find a little bit to at least somewhat increase the refundable portion” of the child credit? Rubio said.

And there you have it. The GOP leadership is desperate; it's so afraid of going into the 2018 mid-term elections with the Donald and without a tax cut which Congressional Republicans can call their own--- that they will cough up the $40 billion to $80 billion that will be needed to reel Little Marco back onto the reservation---or at least his sidekick, Senator Mike Lee of Utah.

In fact, paying off the hold-outs is what they have been doing for weeks, and they have been mostly paying for these concessions through gimmicks, deceptions, and outright budgetary scams.

For instance, they got Washington's favorite RINO (Republican in name only) Senator on board by promising to fund the Obamacare insurance company subsidies----but in separate legislation that would not trigger the Senate's "payfor" rule on the tax bill. And we are not talking about spare change here---but upwards of $200 billion of insurance company bailouts over the next decade.

Likewise, the original GOP plan to eliminate SALT (state and local tax deduction) would have generated $1.1 trillion in payfors over the period. But by adding back a $10,000 allowance for local property taxes in the Senate based bill, about $300 billion of that payfor disappeared. And now another $100 billion has been bargained away in the conference committee because Blue State republicans demanded that the $10,000 allowance be extended to income and sales taxes, as well.

In the same manner of harvesting the votes one at a time, repeal of the corporate minimum tax has apparently been dropped, full deductibility of medical expenses has been resorted, students will be able to deduct their loan expenses, 401k investors will be allowed to continue to use FIFO when calculating capital gains on stock sales, the mortgage interest deduction ceiling will be raised to $750,000----along with countless other cancellations or dilutions of the initial "payfors".

Needless to say, like a reckless teenager, the GOP tax writers have already spend their allowance, and far, far more. So now in order to not to run afoul of the parliamentarian's enforcement of the $1.5 trillion deficit limit and thereby see the conference bill die in the face of a 60-vote Dem filibuster, they are turning the tax bill into an outright fiscal sham and time bomb.

What we mean is they are not playing on the level when it comes to the reconciliation process and the stricture that you may operate with a 51-vote majority if you conform to the 10-year fiscal plan embodied in the budget resolution. But when you generate "payfors" via one-time revenue gains or abrupt tax cut expirations before 2027 in order to offset permanent revenue losses, you are just setting up a fiscal cliff a few years down the road---even if the math reconciles to $1.5 trillion.

For instance, as part of the corporate tax reform, the bill includes a mandatory tax on the estimated $2.8 trillion of repatriated tax liabilities sitting on the foreign books of US companies. This is different than the corporate holiday of 2004 which was voluntary, but it is also just a one-time levy of $300 billion estimated to be payable mainly over the next eight years including a peak revenue inflow of $55 billion in 2025.

But here's the thing: By 2027 there is zero revenue coming in from the 14.5% levy on foreign earnings, but the corporate rate cut that year will cost $160 billion and the gap will grow from there.

In a similar manner, the Senate bill provides for 100% first year or bonus depreciation on equipment investment designed to spur CapEx. That provision is estimated to cost $40 billion in 2019 alone and $125 billion through 2022. But then it bonus depreciation expires---causing revenue estimates to increase by $63 billion compared to current law over 2023-2027.

But if you believe the latter will happen, we have some beach property in Tennessee available.As has been proven over and over in the past, there will be a 11th-hour rush in 2022 to extend bonus depreciation for several more years---least CapEx fall off a cliff in 2023.

And that gets us to the biggest scam of all. After accommodating so many Senators, House factions, and K-Street lobbies, the tax writers are hopelessly beyond the $1.5 trillion limit. So they are on the verge of inking into law a giant tax cliff that will incept exactly 35 days after the 2024 elections.

To wit, they are moving the sunset" provision for all of the individual tax cuts from the end of 2025 as provided in the Senate bill, which itself was a patent gimmick, to becoming effectively a $105 billion Christmas eve special in December 2024.

Like in the case of the 2012 cliff, there is little doubt about what will happen in the lame duck session regardless of who wins the White House and Congress. What would amount to a $300 billion tax increase on individual income taxpayers---including a reversion of the child credit back to $1.000---will be repealed in whole or large part.

Indeed, the sheer scam of it is not even being hidden by the GOP fiscal merry-makers. According to current press accounts,

Republicans have said that the expiring tax cuts for families and individuals would eventually be extended by a future Congress because they will prove popular, but they needed to make them temporary to comply with budget rules.

In short, they GOP tax-writers are not even close to the $1.5 deficit ceiling. If you adjust for all of these front-loaded costs, one-time payfors, and sunset cliffs the total cost of the bill is way beyond $2 trillion.

Meanwhile, the last time there was a showdown on the debt ceiling in 2011, when it was about $14 trillion, the GOP forced the Dems and Obama to adopt strict ceilings on defense and nondefense discretionary spending---with an automatic enforcement mechanism called the sequester.

Alas, the sequester has been deferred time after time at the 11th hour, including the infamous Ryan-Obama compromise of October 2015 that added-back more than $60 billion per year in spending.

Now, however, the rubber is fixing to meet the road and the GOP is showing its true yellow-belly fiscal colors in response. Spurred on by the military industrial complex and the Donald's misguided delusions about making America's military strong again, the GOP has passed and signed into law a $700 billion defense budget for FY 2018 that exceeds the sequester caps by a staggering $66 billion.

Yet the plan for next week is to pass an extension of the CR which blows-off the defense sequester cap----and thereby puts the defense budget on a path that would add at least $1 trillion to the spending baseline over the next decade. And this is scheduled to occur even as they stumble toward completion of a misbegotten tax bill that on a honest accounting basis will add $2 trillion or more to the deficit during the same period.