Surprise! Ted Cruz’s Tax Plan Throws Money at the Rich, Relies on Pixie Dust

by databob –

cruz flag

Well, maybe ‘Surprise!’ is a bit sensational, but hey, it’s a headline.

Ted Cruz unveiled his plan for reforming the federal tax system, and it’s a doozy. He’s way behind Trump in terms of how badly he’d gut the federal government’s revenues: Trump cuts $11.98 TRILLION over 10 years, while Cruz limps in with -$3.666 TRILLION.

Trump’s tax plan is actually rather pedestrian, other than the river of red ink – he just tinkers with rates for the most part (except for getting rid of the estate tax, of course).

Ted Cruz, on the other hand, essentially tears up the tax code in favor of doing something entirely different.

The Cruz plan has a 10% rate for ALL income, with increases in the standard deduction and Earned Income Credit as a sop to the working poor, and eliminates ALL itemized deductions….. oh, wait, except for home mortgage interest and charitable contributions.

If you’re wondering who benefits most, well, the top rate goes down from 39.6% to 10%, and capital gains from 23.8% to 10%. Yeah, you figured it out – if you want the details, check the link above.

Here’s a table from the Tax Foundation’s analysis:

Let’s unpack this a little bit, and focus on the center column titled ‘Static Revenue Impact’ first.Individual income taxes slashed, payroll taxes completely eliminated, ditto for corporate income taxes and estate/gift taxes – all that revenue replaced (well, almost) with something mysterious called a Business Transfer Tax of 16%. Let’s turn to the Heritage Foundation for an explanation:

Business Transfer Tax. A business transfer tax (BTT) is a consumption tax collected at the business level. The tax base is gross receipts from the sale of goods and services by businesses less purchases from other businesses (including the purchase of capital goods). Financial receipts and disbursements (e.g., interest and dividends) are disregarded. Thus, the overall tax base is output less investment, which equals consumption.

The best I can figure is that this is like a Value Added Tax, but while a VAT is charged on individual items as they are bought and sold (manufacturer to wholesaler to retailer to consumer) this BTT is assessed on the overall activity of a business: gross receipts minus purchases, which sounds an awful lot like…. well, a corporate income tax, for want of a better word.I also can’t find any example of another country actually USING this type of tax (many countries have a VAT, but that’s not the same), so the biggest question is:

Are we really going to ditch nearly our entire system of revenue collection and replace it with something that’s never been tried before? Hey, what could possibly go wrong?

Let’s see: Corporations now pay about $340 billion in taxes per year and bitch endlessly about it while spending billions figuring out how to hide as much as possible from the IRS – legally, of course. The top tax rate is 35%, but with all the deductions and other corporate welfare, the effective rate is about 19%. Ted Cruz wants to replace this system with a different tax scheme and a rate of 16%, which is magically going to raise at least 8 TIMES as much money.

So in real dollars (that’s ‘static’ scoring), Cruz’s tax plan punches a $3,666 trillion hole in revenues – that’s $366 billion per year added to the deficit. And that’s with the BIG assumption that his untried BTT works EXACTLY as designed.

So what’s up with the ‘Dynamic Revenue Impact’ column, and why does it ‘only’ have a -$768 billion loss of revenue? Well, here’s the pixie dust part……

Dynamic scoring is based on the reasonable concept that changing the tax system or government spending will have an effect on the economy. The problem is that predicting the future, particularly of something as large and complex as the US economy is highly speculative and subject to every type of bias imaginable.

The conservative hypothesis is that by putting more money in the hands of rich people or corporations (by cutting their taxes), positive things happen and more tax revenue is collected. This was tried by both Reagan and W, and while there was some positive short-term effect, the long-term results are well-known.

Here is a good look at the problems associated with dynamic scoring. Basically, you can get any result you want by fiddling with your assumptions and predictions. Paul Ryan is the past master of this, and – shocker! – he’s brought it to the Congressional Budget Office (CBO) which analyzes (scores) all budget and tax proposals in congress.

The Tax Foundation, which did the scoring I’m using, has a reputation for rather rosy predictions of the effects of tax cuts.

So there you have it: in the race to the bottom by the Republican presidential candidates, Ted Cruz got to the magical 10% ‘tithing’ level that even Dr. Ben Carson admitted he couldn’t reach.

Who’s going to be the first to go lower?

 

Reprinted with permission from Daily Kos

Posted By: Keith

Writer, political junkie, rabid rock music fan, amateur gardener, astronomer and ornithologist, cook extraordinaire, sipper of fine wine and, more than once, the funniest guy in the room.

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