Senator Cruz lives to fight another day. Donald Trump may have taken seven of eleven Super Tuesday states, but Cruz won his home state of Texas (with whopping 155 delegates!) along with Alaska and Oklahoma to stay in the race. Rubio enjoyed his first win in Minnesota. He will probably stay till Florida goes to vote, but the chances are, the Republican primaries will be between Trump and Cruz at the end.
Because Trump is stealing all the attention for his unconventional campaign methods, Cruz may seem relatively “normal” in comparison; however, Cruz is in no way moderate in his political stance. We took a look at this tax reform plan, and indeed, it was nowhere close to being moderate.
His proposed reform plans to achieve three following goals: 1) repeal the corporate income tax, payroll taxes for Social Security and Medicare, and estate and gift taxes; 2) replace all individual income tax rates to a 10 percent flat rate; and 3) introduce a new 16 percent consumption tax- a form of value-added tax.
Let’s look at the specifics,
- Individual Income Tax
- The simplified personal income tax reform plans to unify the existing seven different rates of individual income tax to a rate of 10 percent
- A family of four will not pay taxes on their first $36,000 of income
- For single filers, the standard deduction will be increased to $10,000 from $6,300, and for joint filers, the deduction will be increased to $20,000 from $12,600
- Allow taxpayers to make a deductible contribution of up to $25,000 annually to a “Universal Savings Account”
- Business Flat Tax
- Repeal the corporate income tax
- To encourage U.S. businesses, the current structure will be replaced with a simple 16 percent tax on net business sales (gross sales – expenses and capital expenditures)
- Allow businesses to use depreciation, net operating losses and inventories, and credits accumulated against the new VAT
- Eliminated Taxes
- Death, Overseas profits, alternative minimum, federal estate, gift and Obamacare taxes will all be abolished
- The payroll taxes for Social Security and Medicare will be repealed
The main idea behind Cruz’s reform is to give more financial freedom to citizens, and the government collects from the increased cash flow. By reducing the income tax, individuals would be handed a bigger check every month for more consumption of goods. The VAT is a system that collects taxes based on consumption, meaning that the government collects more when the general consumption increases. Also Cruz, by reducing corporate taxes and imposing a tax liability to U.S. companies’ foreign subsidiaries, intends to bring businesses back to the U.S. Let’s look at the math and see how his system would play out however.
The proposal would cut taxes at every income level- roughly $6,100 on average. The biggest beneficiary would be the high-income taxpayer- those with income over $3.7 million. Their after-tax income is expected to jump $2 million on average. According to the Tax Policy Center, Cruz’s tax plan would reduce federal revenue by $10.2 trillion over the next 10 years- the VAT would raise $19.2 trillion which only makes up for 70 percent of the revenue reduction. Cruz says he will make up for the deficit by cutting wasteful government spending. Sounds easy, but to make up for $10.2 trillion, Cruz will have to shut down the entire military and eliminate most of Medicare.