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
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
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
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
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)
Copyright (c) 2016 Dow Jones & Company, Inc.