As I pointed out last month, Senator Ted Cruz’s proposed 16% value added tax (VAT) and Senator Rand Paul’s proposed 14.5% VAT would be largely invisible to taxpayers because they would not be listed on customer receipts or pay stubs. And both candidates’ insistence on calling their VATs “business taxes” disguises the burden that the taxes would impose on American workers, including those at lower income levels.
Senator Cruz’s remarks at Tuesday’s Republican debate illustrate the danger of this tax camouflage. In response to a question from Fox Business Network journalist Maria Bartiromo about his plan, Cruz said, “for a family of four, for the first $36,000 you earn, you pay no taxes whatsoever. No income taxes, no payroll taxes, no nothing.”
U.S. Republican presidential candidate and U.S. Senator Ted Cruz greets supporters in Concord, New Hampshire November 12, 2015. REUTERS/Brian Snyder.
Apparently, the family’s 16% VAT burden doesn’t count. According to Cruz, this family wouldn’t pay the VAT and neither would anybody else. The revenue would simply materialize out of nowhere.
Senator Cruz’s response, which follows a similar statement in his recent Wall Street Journal op-ed, reveals that his proposed VAT’s hiddenness is a feature rather than a bug. His plan would make the tax hard to see precisely so that people could be told that they’re not paying it. The government would subtly and relentlessly tax away 16% of workers’ real wages while assuring them that they’re paying “no taxes whatsoever.”
Instead of challenging Senator Cruz’s breathtakingly false statement, Ms. Bartiromo oddly chose to press him about his plan’s revenue loss. As Cruz pointed out, though, the Tax Foundation estimates that his plan would have a smaller revenue loss than most of the other Republican candidates’ plans. At first glance, it may seem surprising that his plan would lose so little revenue while offering bigger individual income tax cuts than any of the other plans and eliminating payroll taxes, the corporate income tax, and the estate and gift tax.
But, there’s no mystery. Because the VAT is such a powerful revenue-raiser, a 16% rate would suffice to replace most of the foregone tax receipts. It also makes sense, as Cruz further pointed out, that the Tax Foundation projects a significant boost to economic growth from his plan. The VAT is growth-friendly because, unlike the individual and corporate income taxes and the estate and gift tax, it doesn’t penalize saving and investment.
It’s true that the VAT can raise large amounts of revenue without impeding the capital accumulation that helps drive economic growth. But it’s not true that VAT revenue comes out of thin air. Like other taxes, VATs are paid by people. And it’s wrong to tell the people who bear a tax that they’re not paying it.
from AEI » Latest Content http://ift.tt/20P2bps
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