The presidential candidates are dropping like flies now, so let’s see of the survivors who has the most pro-growth tax plan.
All the Republican candidates have crafted plans that would slash tax rates for everyone and most would vastly simplify the thousands of pages of IRS tax code too.
The chart shows how low tax rates would go under the GOP plans.
FLATTER AND FAIRER VERSUS SOAK THE RICH
Highest Income Tax Rate Proposed by Presidential Candidates
Ben Carson: 14.9 percent
Ted Cruz: 16 percent*
Donald Trump: 25 percent
Jeb Bush: 28 percent
John Kasich: 28 percent
Marco Rubio: 35 percent
(Current code: 40 percent)
Hillary Clinton: 46 percent
Bernie Sanders: 50 percent**
* Cruz corporate rate is 16 percent and the individual income tax rate is 10 percent.
** Sanders says he favors a rate of at least 50 percent.
(Source: Tax Foundation and various news sources)
Senator Ted Cruz has a flat tax plan borrowed from a blueprint in a book by Arthur Laffer and me called, Return to Prosperity. The plan has drawn some criticism on the right of late, though these attacks are mostly baseless.
Ben Carson wants a low-rate flat tax too and he would heroically eliminate all special interest deductions and carve-outs. Jeb Bush, Chris Christie, John Kasich, and Donald Trump want to cut personal income tax rates down to between 20 and 25 percent while eliminating indefensible loopholes.
One common goal of nearly all these plans is to turbo-charge growth by dramatically lowering the business tax rate (now the highest in the world) and reducing the punitive double taxation of investment income. Most GOP plans would cut the corporate/business tax to between 15 and 25 percent.
All of this contrasts sharply with the two Democratic candidate plans. Former Secretary of State Hillary Clinton and Senator Bernie Sanders seem to be in a weekly bidding war to see who can raise tax rates the most. Hillary favors hiking maximum capital gains and personal income tax rates to the mid 40s or higher. Bernie Sanders said last week that he wouldn’t go to a 90 percent tax rate, but anything below that seems to be fine by him.
The Tax Foundation has recently ripped both of these plans, finding that they would lower business investment and cut middle income pay by about 10 percent over a decade. Somehow making the middle class poorer is supposed to strike a blow for equality. Since most of the rich who would be plucked are business owners and investors, wage and salary workers will suffer the collateral damage from the class warfare shots. In short, wealth redistribution is not an economic growth or jobs program.
What about this flap over the VAT tax?
Florida Senator Marco Rubio is running attack ads slamming Senator Ted Cruz’s flat tax as something Ronald Reagan would have opposed. He says that the Cruz plan is a European-style “VAT.”
No, this is a more efficient way to tax businesses with fewer distortions to the economy. All flat tax plans have variations on this type of business net income tax — dating back to the Steve Forbes plan 20 years ago. The Rubio jabs are assaults against the idea of a low rate flat tax.
Conservatives should be excited about the Cruz flat tax. It’s what tax filers have been waiting decades for:
First, the Cruz plan would give America the lowest tax rates since the income tax was devised 100 years ago. For this reason, these plan are estimated by the Tax Foundation to grow the economy by a gigantic $2 trillion extra GDP per year after 10 years. That’s exactly the opposite effect of the Hillary and Bernie show plans.
Second, Cruz’s plan eliminates almost all deductions and credits — which is how they get the rate so low. The IRS could be dramatically shrunk in size. Don’t forget, when there are fewer deductions, there are fewer ways to cheat on your taxes. The lower the tax rate, the less incentive to cheat, which means greater voluntary compliance.
Third, because the Cruz plan is “border adjustable,” imports are taxed at the flat rate when they are brought into the U.S., but American products sold abroad are not taxed at all. This would level the global playing field for American manufacturers, tech firms, and drug companies and bring these jobs scampering back to the U.S. Blue collar union workers should love this.
Rubio and his allies are charging that the flat tax that imposes a low tax rate on the broadest possible business tax base, which includes wages and salaries and benefits will quickly rise from the teens to the twenties or even 30 percent. Even if that happened, it would still be lower than the Rubio tax rate of 35 percent.
In Europe the VAT has been an add-on tax to existing income and payroll taxes. The flat tax is a replacement for the corporate and payroll taxes. This is why liberals hate the Cruz flat tax. It will flatten liberal big government.
Some conservatives complain that the tax is too efficient and so it will raise too much money. Liberals will try to raise the tax rates to finance even more spending. But no matter what the tax system, liberals always want to raise tax rates. This is just an argument to do nothing and never fix the tax code at all.
It’s an argument to stick with the mess of a code we have right now.
I’d take any of the GOP plans over the current tax laws. But it’s hard to see how cutting individual tax rates from 40 percent and business taxes from 35 percent down to 16 percent won’t be a big winner for the economy.
The flat tax won’t make America look like Europe, it will make American race past Europe and the rest of our competitors. That’s conservative, pro-growth — and fair.