Presidential candidate, Ted Cruz's new tax code proposition has a vision for lower overall corporate taxes, and eradication of tax brackets with a preference for a value added tax, which will decrease the taxes for the very rich and slightly increase taxes for America's lowest class taxpayers. Many economists believe that his plan will create a larger government deficit and deflate the economy in the long run. Tax revenue under his proposed system will be cut by about $12.2 trillion.
Corporate tax code will be overhauled and replaced with a flat corporate tax, with 35% as the top rate and a 16% value added tax on businesses. He also wants nonprofits and government organizations to lose tax exemption. To transition into this system, Cruz wants to apply a 10% tax on profit accumulated by foreign subsidiaries of US companies. Cruz emphasized that he is not proposing a value added tax on consumers but rather a value added tax on business profit.
On the income tax front, Cruz plans to collapse the income tax brackets into one flat 10% tax, about 1/4 of the current percentages. He also looks to decrease medicare funding and social security benefits, emphasizing personal fiscal responsibility. His plan would not tax any savings less than $25000 which accounts for most tax payers, so savings would no longer be taxed. After his plan, the top fifth of tax payers will see an 11.3% rise in after tax income, The middle would get on average 3.2% and the bottom 20% will see only a .4% increase.
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Forbes also had an interesting take on this topic. It was found that Cruz's plan would decrease federal revenues by $8.6 trillion during the first 10 years, as well as another $12.2 the following decade. In order to avoid adding to the federal debt, there would have to be large cuts in spending. Cruz's tax plan would also have a negative effect on workers wages due to his idea of a value added tax (VAT). This would make labor costs non deductible as a business expense. Finally, Cruz's plan favors the wealthy. Cruz's consumption based tax system would benefit the wealthy because they typically save more of their income. It will be interesting to see what the other candidates on both the Republican and Democratic have to say about his plan.
ReplyDeleteIn my opinion, it is ridiculous that Cruz would even think to propose a 10% flat tax. He indicates on his website that an additional 4,861,000 jobs will be created as a result of the reduced taxes. Yet, he has no figures to back up this claim. In addition, he wants to eliminate the Death Tax and eliminate the Alternative Minimum Tax. He says, "In the tax-cutting spirit of Presidents Ronald Reagan and John F. Kennedy, the Simple Flat Tax will lift Americans out of the current economic stagnation and into an historic boom." I wonder how voters will respond to this economic stance.
ReplyDeleteHis tax plan will not be able to reduce the budget deficit. The tax cut would reduce saving. In the long term this would be bad. The current budget deficit is at $19,040,250,420,000 and counting. This will take a very long time to fix with a 10% flat tax.
ReplyDeleteI agree with Charlie on the point that Cruz's 10% flat tax is ridiculous. Cruz doesn't have any figures to back up his job creation claim. If experts have deduced that he will cut government savings by 12.2 trillion, we should probably listen. His plan (much like every politician's) is not realistic. However, must of the voters who support Cruz don't do so because of his intelligent tax policy, they follow him because of his stance on social issues. so his poorly thought out tax plan will not hurt him greatly. his supporters will still be there.
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