On Wednesday morning, senators Marco Rubio and Mike Lee released their long-awaited plan to overhaul both the individual and corporate tax codes. Like traditional Republican plans, it consolidates tax brackets, lowers the top rate, and eliminates a host of deductions. But instead of using every last dollar to lower marginal rates, Rubio and Lee finance a massive expansion of the Child Tax Credit (CTC).

That aspect of the plan, which Rubio and Lee have spoken about frequently over the past year, has already drawn significant criticism from those on the right because it uses money for the CTC expansion instead of solely focusing on lowering marginal rates. In the coming days, it will surely face even more scrutiny. It will be interesting, for instance, to see how House Ways and Means Chair Paul Ryan, an adamant supply-sider, reacts to the proposal. Regardless, Rubio and Lee have put forward a credible, conservative tax proposal that could lay the groundwork for comprehensive tax reform in the future—with one glaring flaw.

Business Tax Reform

Under the current tax code, businesses are either taxed under the corporate code or the individual code (where income is “passed through” the business entity to be taxed on the individual side). It’s a complicated system. The corporate tax rate is 35 percent, while “pass through” entities can be taxed at as high a rate as 39.6 percent. Rubio and Lee want to lower the maximum corporate and “pass through” tax rate to 25 percent.

That could inspire individuals to classify their labor income as business income, to pay the lower corporate rate—a potential problem Rubio and Lee are aware of. “In order to prevent abusive misallocation of labor income as business income, this plan also creates strong rules that preserve current tax arrangements for partnerships and independent contractors while discouraging abusive reclassifications,” they write. Whether those rules will work is another story, but at least the senators are clear-eyed about the dangers of taxing “pass through” entities at a lower rate.

On the international side, Lee and Rubio want to move to an international tax system, in which a company’s income is taxed only in the country where it’s earned. This is not that different from President Barack Obama's budget proposal. Under the president’s plan, foreign income would be taxed at a 19 percent rate, with a credit for any taxes paid overseas. It would eliminate any incentive for companies to keep their money abroad because the tax would apply to all foreign income, whether it’s repatriated or not. And since most countries have a tax rate above 19 percent, most multinationals would not owe any U.S. taxes on their foreign income. Only companies that earn much of their income in tax havens would owe additional U.S. taxes on that income.