About the same time that Sen. Ted Cruz, R-Texas was unloading on the moderators at Wednesday’s CNBC sponsored Republican presidential debate, he was also rolling out his flat tax reform plan. While Cruz is getting a lot of popular support for slamming the liberal bias of the reporters who were asking debate questions, his tax plan is likely to get him even more support. When Cruz calls for a flat tax, he means it.
Cruz invoked President Reagan, whose 1981 tax cut spurred economic growth that broke the back of 1970s stagflation, in support of his own tax plan. The essence of the Cruz plans involves radical simplification to spur economic growth.
“For a family of four, no taxes whatsoever (income or payroll) on the first $36,000 of income.
“Above that level, a 10% flat tax on all individual income from wages and investment.
“No death tax, alternative minimum tax or ObamaCare taxes.
“Elimination of the payroll tax and the corporate income tax, to be replaced by a 16% Business Flat Tax. This would tax companies’ gross receipts from sales of goods and services, less purchases from other businesses, including capital investment. Simple, efficient, fair.
“A Universal Savings Account, which would allow every American to save up to $25,000 annually on a tax-deferred basis for any purpose.”
Cruz’s plan does not allow for any deductions, not even the popular homeowners and charitable deductions. When he states that taxes can be filled out on a postcard or a smartphone app, he isn’t kidding. The cost and complexity of complying with the tax code, with all of its pitfalls, goes away. The IRS may not be entirely abolished, but its armies of enforcers will no longer be needed. The tax agency becomes just a small accounting office that tallies out tax receipts and will never again be used as a weapon to harass taxpayers.
Another feature of the tax plan is that businesses will not be able to play accounting games to avoid paying taxes. The slam by the left that Republican tax plans are “tax cuts for the rich” do not apply in this case.
Cruz does not reveal what effect his flat tax will have on the deficit. He is clearly counting on greater economic growth to help make up for any shortfall. “According to the nonpartisan Tax Foundation, my tax plan would boost the size of the economy above current projections by 13.9% over a decade, add 4.9 million jobs and increase average wages by 12.2%. Every income group would get a double-digit wage increase.”
Cruz is also counting on cutting regulations and spending. “Along with other pro-growth policies—repealing ObamaCare and Dodd-Frank, rolling back burdensome regulations, restoring sound money and restraining spending—the Simple Flat Tax will help the economy soar again.”
In short, one cannot fault Cruz for failing to be bold in crafting tax and fiscal policy. It will be interesting to see how Hillary Clinton and Bernie Sanders try to attack the plan and how Cruz will respond in its defense.