The Ted Cruz trickle-down tax plan

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As you might have heard, Ted Cruz wants to eliminate the IRS.

In its place he proposes to impose a single, 10 percent tax on all forms of personal income, no deductions for anything. (Correction: The Cruz plan exempts the first $10,000 in income and allows for a $4,000 per person deduction.) Here’s how the benefits of that “flat tax” regime would be distributed, according to an analysis by the conservative Tax Foundation.

Cruz tax plan

As you can see from the chart above, the struggling American middle class would see an increase in its after-tax income of a whopping 1.2 percent, thanks to the Cruz plan. The richest 1 percent — those already enjoying a massive shift in income — would see a further increase in their after-tax income of almost 30 percent.

Ted Cruz, hero of the little guy.

What about the impact on the deficit? According to the Tax Foundation, the federal government would take a revenue hit of $3.6 trillion in the decade following adoption of the Cruz plan. That’s basically a 50 percent increase in the deficits that are already baked into the books. And to the degree that revenue loss is offset by spending cuts, those cuts would inevitably fall on Medicare, Social Security, tuition assistance and other programs relied upon by the middle class, because those programs, together with defense and interest on the debt, comprise most of the federal budget.

Tax cuts for the rich, financed by benefit cuts for everybody else.

As a conservative, anti-tax organization, the Tax Foundation also analyzes such tax proposals through so-called “dynamic scoring,” in addition to the traditional “static scoring.” Using its economic model, the foundation claims that by significantly lowering taxes on the rich, the Cruz plan would lead to considerably faster economic growth, thus reducing the 10-year impact on the debt from $3.6 trillion to a mere $768 billion.

There are several major problems with that claim. First, none of the nation’s economic problems are caused by a shortage of investment capital, as the stock market demonstrates. Capital formation simply is not a problem. And as the foundation concedes, its model does not include the impact on the economy of higher federal debt as a result of tax cuts. It also does not include the economy-shrinking effect of reduced spending made necessary by tax cuts. By ignoring those factors, it falls well short of a comprehensive, balanced assessment.

But the larger problem is that history has never yet produced the results that “dynamic scoring” has predicted.

For example, “dynamic scoring” told us that the Bush tax cuts at the beginning of the century would be revenue neutral and produce huge employment gains¹; instead the surpluses ended, the deficits soared and when President Bush left office after eight years, the U.S. economy had fewer private-sector jobs than when he took the oath of office.

The same claims of revenue neutrality were made for the Reagan tax cuts, yet under President Reagan the national debt tripled and our nation’s fiscal outlook grew so grim that Reagan himself had to sign 11 different tax increases, including the largest peacetime tax increase ever passed in American history, just to minimize the damage caused by his tax cuts.²

When President Bill Clinton muscled through a tax hike at the beginning of his term to reduce the deficit, dynamic scoring and its GOP adherents predicted economic collapse as a result. Instead, we saw the longest economic expansion in our history, with more than 21 million new jobs created. And more recently, Arthur Laffer and his supporters used dynamic scoring to justify huge tax cuts in Kansas that have proved disastrous to that state’s budget, economy, bond rating and education system.

In short, the Cruz plan offers almost nothing to most Americans, a huge tax cut to the richest of Americans, a substantially higher deficit and claims of future economic growth that are based on nothing more than wishful thinking and disproved ideology.

(Previous posts have analyzed the tax cut plans offered by Marco Rubio,  Jeb Bush and Donald Trump.)

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¹Using dynamic scoring and what he called “extremely conservative” growth assumptions,  President George W. Bush predicted back in 2001 that his proposed tax cuts would so invigorate the economy that the country would produce a budget surplus of $5.6 trillion over the next decade and be able to “retire nearly $1 trillion in debt over the next four years… the largest debt reduction ever achieved by any nation at any time.”

Let’s just say that none of that ever happened.

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²David Stockman, Reagan’s budget director, now calls supply-side theory “the delusion that the economy will outgrow the deficit if plied with enough tax cuts.”