Fact Checking The Latest Cruz Super PAC Tax Ad In Florida
If that was the end of it, that would be a fantastic tax cut for people. But it’s not.
“His 16% business flat tax will promote growth in the economy.”
Here’s where Cruz hides the ball. First, his “business flat tax” is actually a subtraction method VAT (value added tax). It doesn’t matter how many times it’s denied by the candidate and his supporters–
no serious tax expert of any partisan or ideological stripe says it’s not a VAT.
Because it’s a VAT, wages are not deductible from the business tax base, as they are under the corporate income tax this plan displaces. What that means is that
wages are taxed twice under the Cruz plan. First, they are taxed by the VAT. Then, they are taxed again on the personal level. Put those two wage taxes together and you have an integrated/cascaded wage tax of 24.4%.
According to my calculations, including both the VAT tax on wages and the flat tax on wages results in
higher total taxes for a median income family of four, not lower taxes. By contrast,
Marco Rubio’s plan would result in a tax cut of thousands of dollars for this family, despite keeping the payroll tax in place.
A
VAT tax base (business income minus payments to businesses) is different from business profit tax bases (business income minus all expenses) in ways besides the double taxation of wages. VAT bases also tax employer provided health insurance and other fringe benefits, pension and 401(k) contributions, new houses sold, churches, charities, colleges, hospitals, and more. Depending on how it’s designed, a VAT might even result in the government paying taxes to itself. These buckets of revenue are not touched today by the corporate income tax, but they probably would have to be under the Cruz VAT plan to make the numbers add up.