- Republican U.S. presidential candidate Senator Ted Cruz waves in front of rival candidate businessman Donald Trump as they stand with fellow candidates Governor John Kasich, Governor Chirs Christie, Senator Marco Rubio and Dr. Ben Carson as they pose together before the start of the Fox Business Network Republican presidential candidates debate in North Charleston, South Carolina January 14, 2016.
- Chris Keane/Reuters
The Republican debate audience went to a shout-fest Thursday, and a tax symposium broke out.
Senators Marco Rubio and Ted Cruz engaged in a long back-and-forth on Mr. Cruz’s tax plan, arguing over whether it was the value-added tax that conservatives have been opposing for decades. It’s a fight Mr. Rubio previewed earlier in the week in ways that made tax nerds blissful.
For everyone else, this can get a bit bewildering. So here’s morning-after scorecard:
1. Is it a VAT?
Mr. Rubio argued that Mr. Cruz’s 16% Business Flat Tax is actually a value-added tax, a levy on consumption used by every other industrialized nation and despised on the right as the gateway drug to socialism (only a slight exaggeration). Under Mr. Cruz’s plan, businesses would be able to deduct payments to other businesses and capital expenses but not profits or wages. “My proposal is not a VAT,” Mr. Cruz said. “A VAT is imposed as a sales tax when you buy a good.”
There’s no consumer-level tax, but economists across the political spectrum say it’s a subtraction-method value-added tax.
Point to Mr. Rubio.
2. Will it grow government?
Mr. Rubio and Mr. Cruz talked past each other on this point. It’s important to look at Mr. Cruz’s entire tax plan, which would eliminate taxes on estates, corporate income and payroll, among others. The top income tax rate would drop to 10% from 39.6%, and the government would collect $3.7 trillion less in revenue than projected now for the next decade. That’s not bigger government.
Mr. Rubio makes a more subtle point: that a future Democratic government could come in after the Cruz administration ends and raise the individual income tax and reimpose other taxes.
Edge to Mr. Cruz, but Mr. Rubio has a point that may resonate with some conservatives.
3. Will it raise prices?
Mr. Rubio contended that the tax would become embedded in wages and prices and harm retirees. “They don’t get the income tax break,” he said. “But their prices are going to be higher, because the VAT tax is embedded in both the prices that business that are charging and in the wages they pay their employees.”
That would be certain if the value-added tax were added to the existing suite of federal levies. But under Mr. Cruz’s plan, the business tax would replace the payroll tax (paid by workers as lower wages) and the corporate income tax (paid by shareholders, workers and consumers.) And it would be part of a net tax cut. It’s not at all clear what would happen to wages and prices. Nor will the tax plan work in a vacuum. Where the Fed goes with rates, and how it might respond to a new tax, would have an impact. And, as Alan Cole over at the Tax Foundation points out, Mr. Rubio’s plan is quite similar.
Call this a Draw pending further study.
4. Is it a hidden tax?
Mr. Rubio, whose tax plan relies on the existing income tax structure, says a VAT is less transparent and thus easier for politicians to raise. “That’s why they have it in Europe, because it is a way to blindfolded the people. That’s what Ronald Reagan said,” Mr. Rubio said.
He’s right that it’s embedded in wages and prices, but so are several taxes that it would replace. Because the base of the tax is so big — all U.S. consumption — a future Congress could raise a lot of money with a 0.1% increase in the rate. That said, conservatives inside and outside of Congress have a long track record of raising alarm bells and voting no on tax increases and it’s hard to imagine a sneaky national tax increase.
Slight edge to Mr. Cruz.
5. Can we abolish the IRS?
Mr. Cruz talks frequently about shutting down the tax agency and sending auditors to patrol the U.S.-Mexico border. It’s overstated. The individual income tax will still exist. The business tax would require someone to write rules, receive the money, audit companies and collect unpaid taxes — and the payroll tax it replaces is relatively simple to administer. Perhaps the IRS could be smaller, but “abolish” is an overstatement.
Edge to Mr. Rubio.
And VAT’s all, folks.
Related:
Republicans Call for Helping Poor Through Family, Faith
Marco Rubio Says Ted Cruz’s Tax Plan Contains a ‘Sneaky” VAT
Cruz and Rubio Trade Barbs Over Tax Reform Plans
Compare: The GOP Candidates’ Tax Plans
from Real Time Economics http://ift.tt/1NbA8G9
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