In its analysis of the tax reform plan proposed recently by Senators Marco Rubio (R-FL) and Mike Lee (R-UT), the Tax Foundation assumed the proposal would make the new personal credit ($2,000 for singles and $4,000 for married couples) fully refundable. This assumption helps explain why the group concluded the Lee-Rubio plan would be highly progressive. Full refundability would be a significant departure from an earlier plan put forward by Senator Lee that the Tax Policy Center found would raise taxes on poor families. It would be equivalent to a cash transfer payment that every adult could receive even if they had no income or tax liability– they’d just need to file a return and claim it. This change would be very advantageous for low-income households compared with the original Lee plan and, to a lesser extent, current law.  However, the staffs of senators Lee and Rubio have not confirmed to us that the plan would make the credit refundable and there is no indication in the official document that this is true. In contrast, the document describes in detail the portion of the proposed additional child tax credit that is refundable. A fully refundable personal credit would be a radical change. It would cause millions of Americans with no earnings and no other reason to file to become tax filers purely for purposes of claiming the credit.  (In contrast, most recipients of the refundable Earned Income Tax Credit would file tax returns to claim a refund of withheld taxes even if there were no EITC.) Such a credit also would create the potential for significant tax fraud since people would only need to possess a Social Security Number to be eligible.  Without third-party reporting to establish eligibility for the credit, this provision would be very difficult for the IRS to enforce. That said, while such a refundable personal credit has no precedent in US tax law, large unconditional cash payments have been proposed before.  Conservative icon Milton Friedman advocated a negative income tax—basically a flat tax with a large refundable tax credit—as a replacement for welfare programs that discouraged work. The Fair Tax, a national retail sales tax that some conservatives advocate as a replacement for other federal taxes, would include a very large “prebate”—i.e., cash grant—intended to offset the effect of the sales tax on families with incomes at or below the poverty level.  However, critics have commented disapprovingly that the prebate would be “the largest entitlement program in American history.” It’s possible that Senators Lee and Rubio intended to propose such a radical and expensive new cash transfer program, but it would be a big change to the tax law and it's one that deserves to be fully fleshed out in their written plan.   Follow me on twitter.