The Republican Party woke up new and fresh, and ahead of the curve, yesterday morning, leaving the Democrats stale and old back in the 20th century (Keynesian 1930s), if not the 19th (1870s, when Marx was new and cutting edge).
History books will note the turning point of the 2016 election as the evening of October 28, 2015. At the Republican debate that night in Colorado, Texas Senator Ted Cruz . emerged from the Republican Presidential field as the modern 2016 embodiment of Ronald Reagan.
The tax reform plan he unveiled at that debate is as new, exciting, and politically and economically revolutionary as the historic Kemp-Roth tax rate cuts were in 1980. And that was just one plank in an extremely promising economic growth plan that Cruz intimated that night.
The Cruz tax reform proposal would scrap the current income tax code entirely, and replace it with a Simple Flat Tax with the same 10% rate for all forms of individual income. That same 10% rate would apply to wages, profits, capital gains, dividends, rent, and interest income. No one would be able to claim that billionaires are paying lower tax rates than their secretaries, or that the system is rigged to favor the rich over the middle class.
The plan includes a $10,000 standard deduction and a $4,000 personal exemption, which means the first $36,000 in income each year for a family of four would be tax exempt. The plan retains the current Child Tax Credit, and expands and modernizes the Earned Income Tax Credit.
The payroll tax, the biggest tax for the poor and the middle class, would be abolished altogether, with Social Security and Medicare financed in full with no deficits. This new system is consequently rigged to favor the poor and the middle class. Taxpayers could file their income taxes under this simple tax system on a postcard. That means that we can abolish the Internal Revenue Service as we know it, Cruz thundered at the debate.
The corporate income tax would be abolished as well, and replaced with a 16% Business Flat Tax. That 16% rate would apply to gross receipts of the company from sales of goods and services, minus purchases from other businesses.
That includes immediate expensing, or deductions, for the costs of plant and equipment, and all other capital investment. That promotes investment in worker productivity, which is the foundation of rising wages, and in businesses providing good-paying, blue collar jobs, in areas such as heavy industry, mining, energy, farming, ranching, and manufacturing. But no more corporate welfare, special interest, credits, and deductions.
Each worker would also enjoy a Universal Savings Account, where any adult could save $25,000 a year with taxes deferred, like in an IRA, which could be used at any time for any purpose. Cruz also mentioned that he would propose the freedom of each worker to choose a personal savings and investment account to finance future Social Security benefits. The Chief Actuary of Social Security scored a similar plan proposed and introduced by Paul Ryan in 2004 and 2005 as generating savings and investment by working people all across America of nearly $8 trillion over the first 15 years, and $16 trillion over 25 years. That would do more to reduce inequality of wealth than everything dreamed up by Hillary Clinton and Elizabeth Warren put together.
Cruz raised in the debate as well fundamental reform of the Federal Reserve, to restrict its wild monetary policy discretion by firm rules holding its course to maintaining a stable dollar. He suggested a commission to determine whether that should include a link to gold. Such guaranteed dollar stability would further draw investment from across the entire globe, as investors would know they would be paid back in dollars as good as the dollars they invested in the project. Indeed, as good as gold.
The nonpartisan Tax Foundation scored Cruz’s tax reform plan as increasing capital investment by 43.9%. That would create nearly 5 million new jobs, and increase wages by 12.2%. That would increase real economic growth over the next decade by nearly 14%. The Social Security savings and investment accounts and stable dollar Federal Reserve would increase all of that even more.
Cruz’s tax reform plan is a net overall tax cut of about $100 billion a year on average over the first 10 years. The plan is not designed to be revenue neutral because Cruz is running to make the federal government smaller, not raise the same revenue to finance the same spending.
With Cruz’s plans as well for regulation liberation, this all adds up to an economic growth plan that can restore real long-term American economic growth of 4% as during the Reagan years, double the sorry growth of the Obama years. At real growth of 4%, the American economy and national income would double every 17 years. After 50 years, the economy would be 8 times bigger than today. Such long-term economic growth is how America became the richest and mightiest nation in world history.