By Richard Rubin 

Republican presidential candidate Ted Cruz's tax plan would cut projected federal revenue by about a fifth over the next decade, according to a new analysis--a hit that would require sizable spending cuts to meet his goal of balancing the federal budget.

Mr. Cruz's plan would reduce federal tax collections by $8.6 trillion over 10 years, and that doesn't include additional interest on extra debt, according to the Tax Policy Center's analysis, released Tuesday. High-income households would be the biggest beneficiaries of a plan that would lower tax rates and move dramatically toward a consumption tax. The top 1% would get a 26% boost in income in 2017, the analysis said.

The Texas senator is offering one of the most significant shifts in taxation among the field of Republican presidential candidates, and he's banking on Americans' frustration with the complexity and burden of today's system to overcome criticism from both Republicans and Democrats.

Some of his Republican rivals--most notably Florida Sen. Marco Rubio--have criticized the move to a consumption tax as a hidden tax that a future Democratic president could expand to fund bigger government programs.

Mr. Cruz would repeal the corporate income tax, payroll taxes, taxes created as part of President Barack Obama's health-care law and the estate tax. In their place, he would impose a 16% "business flat tax" that would become the government's primary revenue source.

Under Mr. Cruz's plan, businesses would deduct payments to other businesses and capital expenses but not wages. His business flat tax is economically equivalent to the value-added taxes used in every other industrialized country, though unlike those, it wouldn't be imposed at the retail level.

Mr. Cruz would also lower individual income tax rates to 10% and exempt the first $36,000 of a four-person family's income.

"My tax plan--typical family of four--first $36,000 you earn, you pay nothing in taxes. No income taxes, no payroll taxes, no nothing," he said during Saturday's Republican debate in South Carolina. "Everyone pays the same simple flat 10% income rate. It's flat and fair."

That statement assumes individuals wouldn't pay his business tax, but the tax would in fact be embedded in their wages, as well as the prices of products and services they buy.

According to the center's analysis, under Mr. Cruz's plan, every income group would pay less in taxes in 2017 than they do now. The remaining tax burden would shift from high-income households to everyone else. The bottom 20% of households would pay an average federal tax rate of 3.8%, down from 4.1% under current law. By 2025, that bottom income group would lose some after-tax income because his business tax would have a "depressing effect" on wages.

By contrast, thanks to lower taxes on wages, capital gains, savings and business income, the top 0.1% would have a 15.2% average tax rate, down from 34.2%. This group, which would pay about 13.5% of federal taxes under current law, would get 22% of Mr. Cruz's tax cuts, averaging $2 million per household in 2017.

Republicans have complained that the Tax Policy Center's estimates are incomplete because they don't include the effects of economic growth that the tax cuts are designed to spur.

Arthur Laffer, the conservative economist, said in a recent interview that he had spoken with Mr. Cruz and his team but didn't write the plan, which he calls the best one remaining.

"You get extraordinary growth in the U.S. economy, just extraordinary," he said.

The center's scholars argue in response that the positive-incentive effects of tax cuts are uncertain and could be overwhelmed by the higher interest rates caused by rapid increases in federal borrowing.

By contrast, the Tax Foundation, whose board of directors includes former Republican lawmakers, does include economic growth in one version of its estimates. Last year, the foundation projected that Mr. Cruz's plan would cost the government $3.6 trillion in forgone revenue over a decade without accounting for growth, and less than $1 trillion after accounting for growth.

The Tax Policy Center is a nonpartisan project of the Urban Institute and Brookings Institution that used a bipartisan panel of reviewers. Its director, Leonard Burman, is a former Treasury Department official during the administration of Bill Clinton. The center made some assumptions about Mr. Cruz's plan because his campaign didn't respond to their detailed questions.

The center has now released analyses on the tax proposals of four of the remaining six Republican presidential candidates, and all of them--Mr. Cruz, Mr. Rubio, Jeb Bush and Donald Trump--would cut taxes by at least $6.8 trillion over a decade. By contrast, the 2012 Republican nominee, Mitt Romney, said he would make sure his plan wouldn't increase the deficit at all and came under intense criticism from President Obama when he struggled to show exactly how it would add up.

The center is working on analyses of the tax plans of Democratic presidential candidates Hillary Clinton and Bernie Sanders.

(END) Dow Jones Newswires

February 16, 2016 13:15 ET (18:15 GMT)